Investors burned by the bad behavior of stocks in the past increasingly are turning to what may seem an odd strategy for calming their nerves — trading stock options.
After all, options aren’t exactly simple, and with names like “collars” and “condors” seem to be better suited to big institutions than mom-and pop-investors.
But retail investors are looking at options as a way to hedge risk, smooth volatile returns and squelch worries about losing their life savings.
First a word of caution: Investors need to know that options — a derivative of an actual stock — can still lead to big losses. In fact, some financial advisers steer their clients far away from these complex securities.
“To dabble in options is something we highly discourage,” says Marc Scudillo, managing officer at EisnerAmper Wealth Management. “You need to have a baseline in place, and a prudent game plan in place, through diversification first, before you get involved in these enhanced strategies. People often forget the basics, and go off to these hot trends.”
Many brokerages also agree investors should use options as a way to enhance, or hedge, a core portfolio representing 50 percent or more of their investments, depending on their age and investment goals.Page 1 of 6 | Next Page