When used judiciously, strategies can help increase the income generated by a portfolio and provide strategies protection to wary investors. A good first step is mutual funds. This may sound odd in an article about options, but analyzing trading select group of mutual funds that make use of options techniques can help investors strategies understand the technique and the logic behind it, and see the real world results that were generated using the technique instead of hypothetical performance examples. In the end, it may prove easier to buy the mutual fund. Generating income with covered calls is, perhaps, one of the most prevalent uses of options. The basic strategy is for an investor mutual buy a stock and then give someone else the right, but not the obligation, to buy it at a higher price. That right, called a call option, comes strategies a price, or premium, that the owner of the fund gets to pocket no matter what happens. This process is called selling a covered call because the investor selling the call owns the stock. If, however, the stock price appreciates above the price stipulated by the call, it is likely that the person who purchased the call will exercise his or her right to purchase the stock. In this scenario, the original investor gets the premium paid for the call and any difference between the price originally paid for the stock and the price at which it was sold. If this all mutual confusing, it can be. But once the process has been worked through a couple of times it should become old hat. How has this process gone for other investors? Take a look at Van Kampen Equity Premium Income Fund VEPAX. The fund is designed to provide monthly income. In quickly rising markets, the fund seeks to deliver market-like returns with less risk. The covered call strategy will likely limit the upside potential of the fund, however the income earned trading the premiums may help minimize some of the downside if a stock's price begins to decline and provides an added source of return. Mutual, it is less volatile than Vanguard Index Fund VFINX. For those interested in covered calls, this is an interesting fund to fund before taking the leap either on your own or through fund fund or ETF. One of the longest available funds using options to protect its fund from market volatility is Gateway Fund GATEX. To fund this goal, management uses a two-prong approach. First, it seeks to generate cash flow by selling index call options against the portfolio, much like the Van Kampen Fund noted above. Second, it purchases index put options to help reduce downside exposure. A put option is like the reverse of a call option, in that the person buying the put is purchasing the right, but not the obligation, to force the put seller to buy a security at a mutual price. Thus, if the price of the stock or index against which the put strategies was sold falls below the price at which the option was sold, the person selling the put would be forced to buy the underling security at trading higher price stipulated by the put. If the price of the mutual security does not fall below the put price, the option expires and the put seller gets to keep the premium paid. Then, the put buyer is simply out the money. Most can instantly see the limitations here; the covered calls limit the upside potential, as with the Van Kampen Fund, with the costs of the puts adding a further drag. That said, the downside protection should defend against catastrophic loss. So, for a risk-conscious investor, the fund might make trading interesting selection. There are a select group of funds that use each trading the above techniques, including both closed-end funds and exchange-traded funds. The two highlighted above are simply examples that use two basic option techniques. Investors interested in options should take the time not only to review these and similar funds, but also the education articles available from Value Line. When used appropriately, options can be vary beneficial and truly worth the time spent educating oneself about the opportunities and risks. Expand Dashboard Browse Research Markets Find Ideas Investment Education Subscribe Institutional. Reuben Gregg Brewer April 27, Editor's Picks Dogs of the Dow Midyear Review The Coca-Cola Company: A Short SWOT Analysis Industrial Production Strengthens In July. Most Viewed The Dogs of the Dow Regain, and Maintain Their Lead Volatile Alternative Energy Stocks Drug Roundup — May 15, Archived Commentaries June 30, Mid Year Mutual Fund Review March 31, A Five-Year Review Dividend Funds Using a Flexible Fund in Larger a Portfolio Mutual Funds: The Benefits of a Family Approach.
Money Guru : Experts advice for investment in Mutual Funds
Money Guru : Experts advice for investment in Mutual Funds
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