InvestorQ : How will introduction of options in specific stocks benefit an investor?
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Anamika Sodhani made post

How will introduction of options in specific stocks benefit an investor?

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Anamika Sodhani answered.
2 years ago


Options can offer an investor the flexibility one needs for countless investment situations. An investor can create hedging position or an entirely speculative one, through various strategies that reflect tolerance for risk. Investors of equity stock options will enjoy more leverage than their counterparts who invest in the underlying stock market itself in form of greater exposure by paying a small amount as premium. Investors can also use options in specific stocks to hedge their holding positions in the underlying (i.e. long in the stock itself), by buying a Protective Put. Thus they will insure their portfolio of equity stocks by paying premium. ESOPs (Employees' stock options) have become a popular compensation tool with more and more companies offering the same to their employees. ESOPs are subject to lock-in periods, which could reduce capital gains in falling markets; derivatives can help arrest that loss.