So What the Heck Are Options Anyway?
Options give speculators the right to buy or sell an underlying asset at a certain price. For example, let’s take a look at a financial Instrument called a Eurodollar. A Eurodollar is a short term US dollar loan that is issued by a bank outside of the United States.
Now that you know a little about a Eurodollar and how it works, let’s also say that you have a large amount of money invested in Eurodollars. You’re really worried about the Eurodollar exchange rate dropping, so you want to be able to transfer your investment in Eurodollars out of your account without disrupting the rest of your portfolio.
What you can do is use a combination of options and a traditional futures transaction in order to insure your investment against losses.
To do so you simply buy a put option , which gives you the right, but not the obligation, to sell your Eurodollars at a certain price. So if the Eurodollar crashes against the US Dollar, you can make your original investment back without ever losing a single penny.
Options give you the ability to choose when you want to invest or hedge against options without involving any risk.
In this article we’ll be taking a look at some of the different types of options and explain how each strategy can help you increase your wealth.
Basic Forms of Options Contracts
Short options contracts are not really a form of options contracts. This is true because a contract must be sold before it can be bou