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A step further with options

Learning about options

Written by Taco te Gussinklo | 5 minutes
FRI 03-05-2019
Taco in Gussinklo, relationship manager at Alex / Binckbank in Spain, deals with various topics about (self) investing on the stock exchange. This time an article for an investor with experience who wants to use more instruments and who is prepared to delve into the risks and opportunities of options. If you have any questions or comments, you can contact him by e-mail at taco.te.gussinklo@binckspanje.com or by telephone: +34 952 924 011.

Options knowledge

Let me immediately make a statement: I think that an investor with knowledge of options will become a better investor in the long run. Now I think anyway that knowledge about the financial instruments is more than useful. Shares or bonds - high probability that your investments (self-managed or managed by third parties) - are made up of them. In order to have a vision of your positions, you must at least know the basic characteristics.
With options it goes a little further, not that you have to go back to school immediately, but with just an hour of explanation (I am happy to do it) I think a whole new world will open for you. If you decide to work with this, this will be activated at your account after a knowledge test.

Make it easy for yourself: the Option Matrix

I regularly provide our Option matrix to interested parties, a simple but therefore no less effective scheme with the (two) types of options, and the consequence of buying and selling them. Many people would have liked to receive this information dozens of years ago, so that they had known about the possibility of insuring their SNS, World Online, etc. shares.

A step further with options
Don't get me wrong, you can also use options through very specific constructions to, for example, utilize volatility, time value, etc. Although it is certainly worth delving further - I have been happy for a long time if you only master the basics (the matrix mentioned). Just the possibility to insure your shares against a fall in value (which property can do that more?) Is worth the hour of reading / talking. But you can also be interested in receiving premiums with a written call option on your shares as an extra return, for example in a portfolio that needs to generate cash flow.

Or even..
I have also seen in practice that from this base investors have completely changed course. And that the portfolio as a whole is converted into options. So no more shares and bonds, only (index) options. For a layman that might sound like a speculative turn, but you believe me - that certainly doesn't have to be the case. This step will of course only be taken by a seasoned option investor who knows the ins and outs of options.
In addition to private individuals, options are also used by large financial institutions to, among other things, hedge risks. Options are only the means, their use determines whether it is defensive or speculative. And you are there! Of course you need the (basic) knowledge to understand what you are doing. But that is actually the case with everything, driving, playing golf and so on ...

The information in this column is a snapshot and is not intended as individual investment advice or as an individual recommendation to make certain investments. The remuneration of Taco in Gussinklo is / was / will not be directly or indirectly related to its specific recommendations or positions in this column.

Author

Taco te Gussinklo

Taco was an active investor with BinckBank before he joined the team. He also writes finance columns for several magazines and websites. “Investing becomes much more interesting when you have enough knowledge. When I investigate my columns I always find a subject that will be useful to our investors so that they can put it into practice.” 

The information in this article should not be interpreted as individual investment advice.  Although BinckBank compiles and maintains these pages from reliable sources, BinckBank cannot guarantee that the information is accurate, complete and up-to-date. Any information used from this article without prior verification or advice, is at your own risk.  We advise that you only invest in products that fit your knowledge and experience and do not invest in financial instruments where you do not understand the risks. 

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