Options 1.0.1

Cricket’s great, but now back to business…

Today I’m gonna talk about options, so listen up.

For me, options are low-risk : high-reward instruments.

Hmmm, sounds utopic.

Well, it wasn’t always so. At first, I found them to be low-risk : even lower reward. It took a lot of losses and a lot of time to come up with a strategy that has turned options into low-risk : high reward. It’s a personal strategy, and works only with my own temperament and personal risk-profile. You’ll have to discover your own strategy. Bottomline is, that this is perfectly achievable.

Did you notice that all along, options have been classified as “low-risk” in this space?

Well, though that’s relative, mostly it is the case. Mostly, one sees small percentages of the porfolio being dabbled into options, so that makes most option premiums that one pays relatively low-risk when judged in view of one’s entire portfolio.

The Banoffee-pie moment is the fact that the option premium paid up is one’s stop-loss, if one enters an option and doesn’t actively monitor it. This allows one to do other things while the option works. It’s called value addition. One’s created a possible very short-term asset, and one is using one’s time after that to create more assets.

So, let us remember these two characteristics of options for now: low risk and possible very short-term asset creation.

I find options exciting. They challenge me. I don’t use mathematics with options, though many people do. The finance industry calls them “quants”. They use differential equations and calculus, and they calculate betas, gammas, rhos, thetas and what-nots. I don’t do all that. I keep it simple.

While playing options, I only use charts and gut-feel.

I can afford to, because the risk is small.

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