Mastering Options

CHAPTER 10

Hedging Using Options

So far we have been looking at options from the perspective of an investor speculating on the price of an underlying asset. You can think of speculation as gambling on the movement of a financial asset. The big advantage of options is that you aren’t restricted to making a profit just when the market moves higher. Because of the adaptability of options, you can also make money when the market moves down or even sideways. To be frank, the odds on a successful speculation are against you because not only do you have to predict whether the asset will move up or down, you also have to predict the time frame in which this will happen and also how much the price will change.

If it’s so difficult, why do investors speculate ...