One of the most important financial challenges that all people will have is finding a way to save and invest enough to eventually achieve financial freedom. To do this, many people choose to be active in the stock market for years to come to make sure that they are able to earn a good return. Unfortunately, this also comes with a lot of risk, especially if you are going to be investing in individual stocks. One way that you can better manage and mitigate some of these risks is by also purchasing stock options.
A stock option is a contract where you will buy the right to buy or sell a share of a company in the future. While you can use them for a variety of different purposes, one of the best ways to use options is by mitigating the risks of your investment portfolio. For example, if you were to purchase share of a company at $100 per share, it might make sense to purchase a put option for the same number of shares with a strike price of $90 per share, or another level that makes sense.
When you have this contact in place, you are effectively limiting the loss that you can incur to just $10 per share as you will begin to profit from the options contract as soon as the price dips below $90. However, you need to be wary of the cost of the contract as it can dilute your returns.
Overall, investing in the stock market and planning for your future is challenging and complicated. Due to this, it could make a lot of sense to work with a professional that can help you to get organized and reach your goals. The team at HCR Wealth Advisors can help you to do just that as they will be able to assist you in developing a stock and option purchase strategy that could benefit you a lot in the future.
This article is provided for informational purposes only and should not be interpreted as investment advice.