There is no question that investors in today's markets are partaking in some of the most volitile markets in the last century. With the advent of high frequency trading and other computer based trading systems financial markets are facing unprecedented volume. The fact is much of this volatility and increased risk erodes initial capital, and even professional investors that have brilliant minds and extrodinary tools at their disposal are unable to beat the broad market indices.
There is hope for the individual investor in the form of derivatives. If used correctly derivatives help pass of the risk prevalent in equity investments to another party while locking in gains for the investor. In this blog I will seek to find strategies and trades that allow the individual investor to use derivatives the their advantage in the never ending pursuit of beating the market.
Through my years of investing experience, I have found passive derivative strategies to be the most successful long term. This includes writing covered calls, buying puts for protection purposes, and occasionally trading in put and call spreads. This blog will focus on these strategies. Investors should always keep in mind that 75% of options go un-exercised at the date of their expiry.
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