One of the most basic tenets of portfolio theory and asset management is the concept of Diversification. Where this concept gets a little interesting is trying to determine what exactly diversification means. The standard definition, and what most people immediately think of, is to mix a variety of different investments within a portfolio. But what does this actually mean? Most financial advisors will definitely recommend to their customers to spread their assets between corporate bonds, government bonds, international stocks, domestic stocks, real estate, cash and maybe even commodities. This is commonly referred to as asset allocation. Allocating assets across different asset classes is by all means a great idea and a great way to achieve diversification. When investing in stocks, another form of diversification is to have holdings across different segments of the market. It might not be such a good idea to have all of your stock investments in one specific sector of the market, like the energy segment, for example. It is a better idea to have your stocks diversified across multiple sectors, such as energy, materials, utilities, financials, health care, information trading, industrials, consumer staples and consumer discretionary. By owning stocks across multiple market segments, a portfolio is diversified against any one of those segments trading the market as a whole. Lastly, one more way to achieve diversification is to utilize multiple trading strategies within your portfolio. Here I would like to discuss the utilization of different different trading strategies. Some stock investors new to option trading might start with the simple strategy of buying a call option, for example. Buying a call option gives the owner of that call the ability to buy a stock for a specified price before a specified date. This is a limited risk-unlimited reward strategy that an investor might use to gain upside exposure to a particular stock that they think is going to go higher. It has limited risk since an investor can only lose the premium they pay for the call option. It is probably better for an option investor to understand, and be able to use, a variety of different trading strategies. These strategies should include understanding the risks and rewards of both buying and selling options. It trading also include understanding both calls and puts the ability to sell a stock for a specified price before a specified date. To illustrate, using the example from above, an investor could simultaneously buy the November 58 call and sell the November 61 call. This too is a limited risk strategy, but since it includes a short option, it has a limited reward. Different by using different call spread instead of just buying a long call, the position has decreased the maximum loss and increased the probability for any profit. That is exactly the point of diversification: The concept of diversifying options strategies would translate to investors who use other options strategies as well, such as selling credit spreads or selling cash secured puts. Investors should learn different strategies, and use different strategies. It is a good idea for investors to gain as much understanding of a variety of investing tools. Having a variety of tools, knowledge and skills will allow an investor to achieve greater diversification. This, in turn, will give an investor trading opportunity to take advantage of different market conditions and give them the best likelihood to have a positive investing experience. Since I began this series on discussing strategies which take some investment chips off the . Consolidated Tax Forms are now available in both OptionsHouse platforms. To access your . The above information is provided by OptionsHouse for informational and educational purposes only and is not intended as trading or investment advice or a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You are solely responsible for your strategies decisions. Neither OptionsHouse nor any of its employees, officers, shareholders or affiliated companies guarantee the accuracy of or endorse the views or opinions of guest speakers or commentators. Projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature and are not guarantees of future results. Results may vary with each use and over time. Any examples used that discuss trading profits or losses may not take into account trading commissions or fees. FINRA BrokerCheck reports for OptionsHouse and different investment professionals are available at www. OptionsHouse does not provide investment, tax or legal advice. Options and futures transactions involve risk and are not suitable for all investors. Electronic trading poses unique risk to investors. System response and access times may vary due to market conditions, system performance and other factors. An investor should understand these and additional risks before trading. Securities and strategies products and services offered by OptionsHouse. Member FINRA SIPC NFA. Log in Strategies an Account. Using different stock and options trading strategies for diversification October 22, Todd Rich Trading Strategies One of the most basic tenets of portfolio theory and asset management is the concept of Diversification. Tweet Strategies Plus one Share. You may also enjoy The market is leaving Apple behind, should you do the same? Take Chips off the table? 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3 Keys to Day Trading Success; Change your FUTURE with this strategy!
3 Keys to Day Trading Success; Change your FUTURE with this strategy!
Through Frankenstein and Blade Runner, the desire for ultimate success is represented through the pursuit of knowledge and the application of science and technology.
When student write essays, there are times when their writings become amusing because they are ridiculously at variance with what are normally seen in written essays.
Through Frankenstein and Blade Runner, the desire for ultimate success is represented through the pursuit of knowledge and the application of science and technology.
Comer, Strange Meetings: Walt Whitman, Wilfred Owen, and the Poetry of War.
Everyone can help save the nature around us by acting out in many different ways.
When student write essays, there are times when their writings become amusing because they are ridiculously at variance with what are normally seen in written essays.