Options

These are trading tools. Do not mistake them for investments.


 

An option delivers the right (but not the obligation) to make a specific investment. They cover a spectrum of instruments including 'puts', 'calls', 'warrants' and 'covered warrants'.

They are a useful tool in the armoury of an active, full-time professional trader. You are not one. Therefore do not use them.

If you must ignore this advice, only buy options (which limits your loss to the premium paid). Do not ever, ever sell (or write) options. That is like handling dynamite: quite safe for an expert, but not for you.

Quite reputable publications print articles describing option trading strategies in a way that implies they are limited risk. The logical errors in these articles are often subtle and difficult to spot. They involve misuse of the principles of financial leverage, probability and expectations.