Many economic advisors and market watchers are cautioning investors about an upcoming recession. While there is currently a long-sustained bull market, it is well known that it can’t last forever. According to the team at HCR Wealth Advisors, now is a good time to learn more about the different risk management tools that are available to investors. One such tool is the use of options. This strategy may seem complicated and esoteric to the average investor, but with the knowledge shared by HCR Wealth Advisors, it is a tool that can prove useful to many.
A number of advisors are finding the media’s constant worrying about recession overblown, but it’s always a good time to explore effective risk-management strategies. To this end, options may be a good tool to have in one’s toolbox. Purchasing an option allows investors to hedge their current investment positions. One can write either a put or a call depending on the direction that they believe the underlying stock is going to take. A put option allows them to buy the stock at a certain price, while a call option lets them sell the underlying stock at the strike price.
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The options typically last for up to nine months, unless the investor chooses a long-term option. It is possible to exercise one’s option anytime between the initial purchase and the date of expiration. Investors who find the process too confusing or aren’t sure exactly how to implement a workable strategy can rely upon professional financial advisors to guide them. Options can be an effective tool for protecting clients who have a significant amount of capital invested in a single stock. This can happen when stock is used as part of an employee’s compensation. With options, the client has protection against downside risk.
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This article is provided for informational purposes only and should not be interpreted as investment advice. HCR Wealth Advisors is not affiliated with this website.