Explain, with examples, the relative advantages and disadvantages
2006-12-27 11:18:47 · 5 answers · asked by dd 1 in Business & Finance ➔ Investing
Let me explain the hardest risk management system designed till now the 'Portfolio insurence' by Rubenstein, Leland and Obrien of Hass Berkely School. This is not yet used by any one since the use of it was found to be the cultprit behind high market volatility and eminent crash of the stock market.
Suppose you hold physical stock and it has gone high, then you sell options the put type anticipating your stock price is going down. In fact when it goes down, you buy again shares at lower prices. This way you realise your profit at the peak and increase your potential to make profit in the next bull run.
The other types of common hedges I am not explaining since it needs lot of basic understanding of options with some understanding of the matrix of knowing how much and when.
2006-12-28 04:16:04 · answer #1 · answered by Mathew C 5 · 0⤊ 0⤋
I know options give you the right but not the obligation to buy, while futures are a set price for delivery at a certain date, and I guess the disadvantage would be what happens to the money you paid for the option if you decide not to buy.
2006-12-27 11:25:27 · answer #2 · answered by Gustav 5 · 0⤊ 0⤋
Check out this web site http://www.masteryinwealth.com there is a free e-book you can download which explains all about trading in options.
2006-12-27 15:26:00 · answer #3 · answered by Anonymous · 0⤊ 0⤋
You can buy put options to protect yourself in case of a market decline.
2006-12-27 11:19:48 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Cover your position. For example, if you own equity shares, sell call options.
This link will explain some strategies:
2006-12-27 11:21:16 · answer #5 · answered by Anonymous · 0⤊ 0⤋