28 lines
984 B
Plaintext
28 lines
984 B
Plaintext
22 • The Intelligent Option Investor
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The beautiful thing about this flexibility is that an intelligent option in-
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vestor can pick and choose what exposure he or she wants to gain or accept in
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order to tailor his or her risk-return profile to an underlying stock. By tailoring
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your risk-return profile, you can increase growth, boost income, and insure
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your portfolio from downside shocks. Let’s take a look at a few examples.
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Options Give Investors Many Choices
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Buying a Call for Growth
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-
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50
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100
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150
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200
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BE = $55
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GREEN
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Above an investor is bullish on the prospects of the stock and is using a call op-
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tion to gain exposure to a stock’s upside potential above $50 per share. Rather
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than accepting exposure to the stock’s entire downside potential (maximum
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of a $50 loss) as he or she would have by buying the stock outright, the call-
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option investor would pay an upfront premium of, in this case, $5.
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Selling a Put for Income
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50
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100
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150
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200
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-
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BE = $45
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RED |