Depending on your portfolio, you may have experienced a rollercoaster ride over the past few months. With the market coming off record levels many investors are starting to feel nervous. Have we hit the bottom or will the market continue to fall?
What to do if you are uncertain
Professional investors often go for cover in Exchange Traded Options (ETOs) when uncertainty looms.
Exchange Traded Options on ASX are available over the top 82 stocks in the market as well as the ASX 200 index (XJO). Options could be described as similar to mini insurance policies that we are all familiar with.
Many of us hold insurance on our house and car but leave our share portfolio (often the most valuable of our assets) to the volatile forces of the market. Just how much better would you sleep at night knowing your portfolio is insured?
How to buy this insurance?
Step 1: Get informed
Speak to your broker, attend an ASX course or read about a variety of strategies.
The ASX website will give you enough understanding of the product to know that ETOs can be a very effective and beneficial investment tool. Learn more and it could pay dividends.
Step 2: Set up
Setting up an account to trade options is no more involved than to buy and sell shares. Call your broker or apply online. Read the ASX explanatory booklet your broker will send you, fill in the necessary account opening forms, make a deposit in your cash management account and you now have the infrastructure to buy and sell options.
Step 3: Give yourself peace of mind
The market is volatile and, whilst you accept that investment is not all up, up and away, now might be the time to be buying a put option to protect stocks or at least reduce your overall level of risk. Maybe the market will rally to 8,000 in a couple of years. But it could conceivably suffer significant falls (just look at what happened in January) and that's painful.
A more certain future
As far as options are concerned, you can construct a strategy that will best reflect your investment view. If your view is correct the strategy will always work. The most attractive part of using options is that they create flexibility in your investment plan. If you learn how to use the products correctly you will be able to make better informed investment decisions. If you are unsure of which option strategies best suit your needs, speak to a qualified advisor.
