This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Options Find a Place in Investor Toolbox

NEW YORK ( TheStreet) -- Although seen as speculative and dangerous in the past, options trading has increased as investors find simple and beneficial strategies to use for their portfolios.

Average daily trading volume for options has grown about 17% a year since 1992, according to data from the Options Clearing Corp. Options trading volume has only begun to sputter this year, with average daily volume currently down about 10% from 2011.

JJ Kinahan, chief derivatives strategist at TD Ameritrade, says options trading has grown tremendously due to "increased education and public awareness." In the past, people blamed derivatives for market downturns and were discouraged from using derivatives like options.

However, as investors gain experience in trading options and understand how options can be an important part of their portfolio, Kinahan expects that options trading will continue to grow.

Many people have stayed away from options because they lack understanding of different strategies and fear losing money through speculative strategies. However, Robert Luna, CEO and chief investment officer at Surevest Capital Management, says options can be used as a protective strategy and are "not purely a speculative vehicle."

Especially in the current market, it is "worthwhile for investors to look at some types of hedging strategies including options," says Mike Binger, senior portfolio manager at Gradient Investments. Even unsophisticated investors can use different option strategies to hedge against individual stock positions or an entire portfolio, he says.

Luna agrees that options can be a useful investment tool in the current market. "Simple asset allocation is no longer working, due to high correlation in the market, and investors need better ways to protect against downside risk," he says. Option strategies can provide some protection from downside risk, or at least alleviate some risk through premiums.

"Options allow for greater moves in stock prices than investors anticipated," Kinahan says, because options can give investors steady returns and more protection.

Kinahan says options also allow investors with small amounts of capital to participate in the market. "Most investors can't buy Apple (AAPL - Get Report) -- it's too expensive -- but options allow smaller investors to express their opinions about stocks like Apple."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters