When it comes to the stock trade for the conservative investor, there is no doubt we're talking about stock options. But, what exactly is a conservative approach to trading? And what techniques can the savvy investor utilize in 2018 to manage risk and ensure growth? We've outlined a few options that might be right up your alley:
- Covered Call Options
The covered call is really the most conservative of options and some say it's even more conservative than purchasing the original stock. Frequently used within IRA accounts, the covered call can be approached by a conservative investor from two perspectives:
- Generate Consistent Income: You can employ this strategy without selling shares of a business while still generating monthly or weekly income. This strategy is usually used to capitalize in the event that your stock price is planned to decrease or not show improvement within in the short-term.
- Sell Stocks at Premiums Selling stocks above the current price may be useful when you can stipulate the price on a stock with which you're not uncomfortable selling. This tactic is useful in getting a stock that you are not in a hurry to offer and the sale of the Call may actually take the stock but at the cost that you establish when the option was sold by you.
- Use Puts as Insurance
This is a strategy that can be used by you if you anticipate a reversal in a short-term stock price hike. Because you're interested in reaping the long-term benefits, you are interested in taking the short-term profits, therefore purchasing a Put will ensure that if the stock goes down in value, the value of the Put will go up. Furthermore, you can sell the Put at a greater cost than you paid for it and reap a gain while the price of the stock is declining.
- Secure Puts with Cash
Another method of securing your interest in a long-term investment is to hold adequate capital in cash on a stock that may see a fall in price. Of course, you must understand the business you're investing in and set a pre-determined price for your stock Put, but this is a simple method to ensure your long-term investment is protected because when the stock does fall, you can close in on the stock Put price.
As with any investment opportunity, the strategies for stock options are endless. Although the stock market is normally associated with short-term investments, conservative investors are starting to identify options for long-term investments within the stock exchange system that not only generate income, but add value to your portfolio with minimally involved risk.