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Options essentially represent the right, or option, to buy or sell an asset at a predetermined price before or on a predetermined date. As options relate to stocks, a call option is the right to buy a stock and a put option gives the owner the right to sell a stock. An individual investor can either buy options or sell (or 'write') options. Options on large exchange listed companies and ETFs (or Exchange Traded Funds) trade commonly every day, and as such they are liquid investments - meaning an investor can buy or sell them with relative ease.

Options are commonly misunderstood amongst those that aren't fully acquainted with their intricacies. For example, there are some options strategies that are very defensive in nature. An investor who owns stock XYZ, which currently trades at around $50 per share might buy a put (the right to sell) option @ $45. Via this purchase, the investor ensures that their loss on XYZ will be limited to $5 per share in addition to the purchase price of the option. If XYZ declines to $40, the put option gives the investor the chance to sell at $45 - regardless of the current market of XYZ.

Or an investor may wish to generate income on a stock investment by selling what are referred to as covered calls. In this scenario, an investor who owns XYZ stock doesn't necessarily think that it will go up in value significantly in the near term. If XYZ is trading at $45 per share, the investor might write (or sell) calls at $50 per share - generating income from the transaction. Whomever buys the options that the investor sold therefore has the ability to purchase the shares at $50. If the stocks never trades above $50, the investor who wrote the calls simply earns the income from selling the options. On the other hand, if XYZ goes up to $60 - the investor still must sell @ $50, thereby giving up the extra gain.

As well as the above outlined relatively conservative options strategies, an investor can take much more aggressive approaches to options. These aggressive approaches imply much higher levels of risk for the investor. As such, it is recommended that you speak to your SG Long & Company Financial Advisor before pursuing any options strategy.

Predictably, there are a wide variety of options strategies that may or may not be suitable to any given individual. From writing covered calls, to buying index puts - there is an almost infinite amount of potential approaches. Due to the complexities involved and ranges of risk exposure possible, it is best to consult with a financial professional before employing an options strategy. Your SG Long & Company Financial Advisor would be happy to address any questions you may have regarding options.