Stock options are excellent instruments for reducing risk exposure or increasing yields. Profits can be realized whether your market view is that prices will move up, down or remain flat. Stock options can even be an alternative to purchasing shares in the cash market, as investments in options often require a lower capital outlay than a comparable share purchase. A small price change in the underlying share can lead to large increases in option yields. Stock options are also an effective way to protect against price declines where only a relatively small amount of risk capital is required.
