Vladimír Urbánek (Kurzy.cz)
Commodities  |  December 18, 2012 10:41:30

OPTIONS - why should we be interested? What to watch out for and what to expect from them?


In connection with the planned online chat with John Rohrbacher from the company BBI on options and option strategies, we asked for a little introduction to this at first sight a little "exotic" investment world.

Why should we be interested in the option at all?

The great advantage of options is their great variability and flexibility, can be used for virtually any phase of the market. As an option trader is not limited to situations where you expect that the market will rise or fall. Options can be a very good use, even if such a market, stagnation, move to the side or very high volatility, when you assume that there is a significant increase or decrease in market prices, but you're not sure which direction the market will eventually issue .

Besides these options trading strategies can also be used very effectively as a hedge against the decline in equity portfolio management at the exchange rate or commodity risk, etc.

What should pay attention beginning traders?

Options are specific in that they are characterized by an asymmetry of profits and losses between the seller and buyer of the option. While the buyer of the option pays for the purchaseoption premium, which is also his maximum loss from the transaction, the seller immediately at the opening of business the premium collected on your account, but it is exposed to the risk of very large losses if the market goes against him.

Attractions are therefore quite "balanced" on both sides. Shoppers options are often lured very cheap options - I often hear the argument that the option has a very favorable ratio of profit to risk, for option price (= max loss) is very low (eg only the order of tens, and units often dollars) and potential for profit is almost unlimited.It is important to realize, however, that the fact that given the option to be profitable, the market must move very significantly (at least a few percent), which is too often not the case. Probability of success is very small, and investor in the finals losing the invested funds.

In contrast, option sellers often get carried away by a very high pravděpodobnostízisku if sold (listed) options, often above 90% (depending of course on the choice of strike). I, too, in its commercial infancy had with this problem.But there are situations on the market - random recall a memorable October and November of 2008, or even last August, when stock indexes fell sharply and very distant selling put options can get into big trouble if the position does not adjust and have not driven actively.

So it is better option to buy or sell? So what can help?

Although it may sound strange at first sight, clearly prefer to sell options before buying. Many of my business strategy is built right on a periodic listing of options and the related "encashment" virtually option premiums every month. Success of such deals is indeed very high, but the same in any other type of trading, of course, is the alpha and omega of a well-constructed risk management know how in tense situations, and how to maintain an open position best to intervene.

Which option trading strategy can be alone?

It is primarily a market-neutral strategy - ie just those that earn in a situation where the market goes rather to the side. Ideally I want to achieve each month during such a development percent appreciation.

The strategy is based on the famous Iron Condor option strategy that trades primarily in U.S. equity indices.Likelihood of a successful business is very high, it can be said that almost every month, evaluate strategies account for a few percent. Generally, however, the disadvantage of such strategies rather unfavorable ratio to the risk of loss. Therefore I edited the whole concept of the elements of dynamic control in a situation where the market sharply strengthen or weaken the contrary. Such modification ensures that even velképohyby market for this strategy is not a problem and the proof is the fact that the significant declines in the markets in 2008 did not affect the profitability of virtually no impact.

Other strategies which are active, the credit option strategies for volatility index VIX and strategy based on statistical arbitrage in the bond market. More information can be found here .

What assessment can be achieved with warrants trading?

It depends on many factors, of course, is the primary investor appetite for risk. The BBI create strategies tailored to both very conservative investors, where the evaluation is around 8-10% pa, a balanced portfolio typically achieve 10-15% annual appreciation. Dynamic investors in the long term, we offer strategies surpassing 20% pa For more on this here .

This question is not easy to answer, of course, an investor with a higher propensity for risk can achieve a significantly higher appreciation. The BBI is not our primary goal to achieve extremely high yields at any cost, maximum emphasis in choosing investment strategies we place on safety. Before any investment recommendations carefully evaluate all risks and finally we select investments that meet the most stringent requirements in terms of return, risk and liquidity.

Over what time horizon in Option investing in? It's weeks, months, years?

This again depends on each investor and his wishes. Dynamic option transactions are usually made ??for periods shorter than one month, on the other hand, we use a whole range of long-term investment strategy where the optimal holding period of about 1 year. Typically, the more dynamic portfolio, the shorter expiratory times we set.


For inquiries, even John Rohrbacher can insert into the online chat, which can be found
HERE

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