Options

In this chapter, we introduce options. The ability to buy and sell options on a wide variety of instruments has been the most interesting development for investors of the past decade. Options offer the investor the ability to create a wide variety of risk and return alternatives from the same underlying security. Options allow investors to take a view not only on prices in a market but on the volatility or risk of that market. Options also form the basis of all the securities we have already come across. Options are the building blocks of investment. An understanding of futures and options, or ‘derivatives’ as we saw in Chapter 6, is of importance to both private and institutional investors.