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by JumpCrisscross
3050 days ago
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> Could you recommend any resource for gaining that understanding of options? The Options Clearing Corporation [1] actually has a solid set of introductory courses [2]. That said, I am very conservative about when I believe individual investors should be trading options. (With surplus investment capital, i.e. after tax-advantaged retirement accounts and liquidity reserves have been maxed out, and principally for purposes of hedging (versus leverage). [1] https://en.wikipedia.org/wiki/Options_Clearing_Corporation [2] https://www.theocc.com/education/ |
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Between weddings, funerals, car purchases, home purchases, major home renovations (new roof, new windows, etc. etc.), there are a lot of things that can be planned for 5 to 15 years out that probably should be properly invested. These lengths are long enough that sitting on cash is probably a bad idea, short enough that you need it before you can crack your retirement accounts.
Some of those things can be paid from your 401k or Roth IRA, but its a bad idea IMO to draw from your tax-advantaged retirement accounts in these cases.
A real world example: if you are beginning to look for a house and will likely need $70k+ for a good down payment, that would be the time to buy put-options to "lock in" your $70k.
You haven't found a house yet, but within 6 months or so, you'll likely need the money.
Without options, you'd basically be forced to sell your stocks ASAP, in case the market crashes and ruins your plans. But with a put-option, you negate all the downside risks, while retaining the ability to collect dividends and benefit from upward swings of the market. The put options allows you to confidently hold the stocks up until the week before closing (You'll still need time to transfer the money and generate a cashier's check, but you won't have to worry about market fluctuations)