Essay: Benefits of Option Trading

16 Oct

Essay: Benefits of Option Trading

Sample Essay

Budwick (2004), points out various benefits gained through this form of business. First and foremost he points out that option trading help to a greater deal in risk management for the parties since  arrangements involving Put options gives an allowance to  hedge against a possible fall in the value of shares you hold.

It is a clear way to generate income for parties involved. The income is generated through earning extra income over and above dividends by writing call options against shares one have that can encompass shares bought using a margin lending facility.

Thirdly, the option trade through options allows for building a diversified portfolio for a lower initial outlay than purchasing shares directly. Fourthly, the taker in the option trade the take has time to decide when to exercise in accordance to his or her convenient. And lastly in this paper but not limited to others views, is the fact that there is an element of leverage that provides the potential to make a higher return from a smaller initial outlay than investing directly (Schaffer and Schaffer 1997).

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