Stock options give an investor the right to buy or sell shares at a set amount before the expiration date. There is however, no obligation to buy or sell such shares. It provides the opportunity to participate in price movement of stocks without actually holding the shares. This right can be had at a fraction of the cost of ownership.
The option’s value as well as the investor’s profit potential is affected by how much a stock price moves and how long such movement takes, as well as the stock’s volatility. It could happen that you are heading towards the right direction but run out of time when the options expire. There are various options strategies, but there are essentially two conservative uses of options which are to generate income and cushion a portfolio from downside risk.
