Kenneth R Trester - Understanding Etf Options: Profitable Strategies for Diversified, Low-Risk Investing

UNDERSTANDING
ETF OPTIONS

Profitable Strategies for Diversified, Low-Risk Investing

Kenneth R. Trester

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All investors need to know how to survive in the colossal cosmos, on the predatory planet, and inside the bewildering wilderness of finance.

Investing today has become a dangerous venture. Real estate, considered a sure investment, has almost collapsed in price. Stocks are now at the same price they were at 12 years ago, and the U.S. dollar is now worth less than $0.60 in 1990 measures. In 2008, several blue-chip stocks went out of business, and credit markets were on the brink of disaster.

As you can see, the market has become a far more volatile place. One day in 2010, we saw a flash crash. The Dow Jones Industrial Average dropped 1,000 points, plunging 500 points in 15 minutes and then bouncing back in 15 minutes. Some blue chips, like Procter & Gamble, dropped from 60 down to 30. Other stocks dropped to pennies on the dollar. Exchange-traded funds (ETFs) took on even more damage during that same 15 minutes. Then all of them bounced back.

Lots contributed to the volatility: high-frequency trading, computer-run markets, and ETFs that increased at two and three times what the market was doing at the upside and downside. The investment markets have become a minefield where an investment can blow up at any time.

These wild markets have scared many investors away. Many are hiding money in the U.S. dollar or Treasury bills and bonds, but inflation is beating them. The dollar has suffered from inflation averaging about 5 percent per year. This inflation may expand dramatically in the future.

The only way to protect yourself from a dangerous environment is to diversify so that if an investment blows up, you will be able to return to fight another day.

There has been an explosion of exchange-traded funds (ETFs), and they offer an investor an efficient means to diversify. Not only do they offer a way to diversify, but they allow you to diversify in an extraordinary variety of investments, for now you can use them to invest in commodities, currencies, bonds, and many other types of investments that were not available before now.

Besides diversification with ETFs, there is another survival tool in the arsenal that enables you to use the great volatility in the market to your advantage. This, of course, is options. The versatility of options is quite remarkable. You can buy them and sell them. You can use them to buy bargain-priced stocks or ETFs, and you can use them to sell stocks and ETFs at bonus prices. You can insure your portfolio with options, and you can enhance your portfolio with a steady income. Options are indeed useful!

Then put them together. ETFs and options together can be formidable weapons in your arsenal and will help you in your survival and success in this very difficult financial world. Each one, option or ETF, has its own rules and purposes. Each one functions in a different way, yet both serve in achieving financial security.

Yes, the financial world now appears to be a colossal cosmos with ever-expanding financial vehicles. This can seem overwhelming, but if we can get to the moon and travel regularly to a space station, we can master this figurative cosmos. In fact, ETFs give nonprofessional investors much easier access to financial value, and options give them the means to handle, acquire, and safeguard that financial value.

The financial world has expanded incredibly but so has our ability to handle it.