Feb
15
2023
What Is a Call Debit Spread?

What Is a Call Debit Spread?

By | Growing Wealth, invest, Investing | Comments Off on What Is a Call Debit Spread?

A call debit spread — also referred to as a bull call spread or a long call spread — is an options trading strategy where a bullish trader purchases a call option at the same time as they sell another call option with a higher strike price and the same expiration date.

Essentially the call debit spread is a long call with the addition of a hedge of a short call to reduce risk. The level of risk is well defined; but it has limited profit potential.

This options strategy can be a good way to profit from increases in underlying asset prices.

Call Debit Spread Definition

Like some other common options strategies, call debit spreads may be traded out-of-the-money (OTM), at-the-money (ATM), or in-the-money (ITM).

To understand this strategy it helps to review the basics of call and put options. The basic steps of the strategy are:

•   Purchase a call option

•   Sell a call option with a higher strike price

The reason they are called debit spreads is the trader will incur a debit (cost) equal to the price of the purchased call option less the price of the sold call option when they enter the trade. An investor loses the entirety of their debit if the underlying stock closes below the strike price of the long call (the lower strike price).

The closer the strike prices are to the price of the underlying asset, the higher the debit payment is. But a higher debit also means a higher potential profit.

Recommended: Guide to Writing Put Options

Entering and Exiting a Call Debit Spread

To enter a call debit spread, a trader purchases a buy-to-open (BTO) call option and a sell-to-open (STO) call option that has a higher strike price and the same expiration date. The way the trade is structured, the trader is paying a debit. The entry can be at any strike price.

If a trader is more bullish, they can choose to purchase a spread that is more out-of-the-money. By selling the call option with the higher strike price, the trader gets into the trade at a lower cost and defines their risk and profit level.

To exit a call debit spread, the trader sells-to-close (STC) the long call option and buys-to-close (BTC) the short call option.

Traders have some ability to adjust their trade prior to the option expiration date, but they will pay an additional amount to do so, thereby increasing their risk and lowering their profit potential.

Additional flexibility exists in the ability to roll out spreads to a later expiration date. A trader might choose to do this if the option’s underlying asset price hasn’t moved enough to make the trade profitable.

In order to do this, the trader can sell the bull call spread they own and buy a new spread that has an expiration date further in the future. This can potentially increase the potential for profit but the trader will have to pay an additional fee, so this adds some amount of risk to the trade.

This is just one of many strategies traders can consider when thinking about how to trade options today.

Call Debit Spread Examples

Let’s look at two examples.

Example 1

Stock XYZ is currently trading at $100 per share. To enter into a call debit spread, a trader could purchase a $103 call for $1.00 at the same time as they sell a $105 call for $0.40. This would create a net debit, which is why it’s called a call debit spread.

The maximum loss and net debit for this call debit spread is:

   Premium paid = Cost of Long call – Cost for Short Call

   Premium paid = $1.00 – $0.40 = $0.60 net debit

   Note: The $0.60 net debit is per share. Since an option contract is for 100 shares, the debit will be $60 per option contract.

The maximum profit for this call debit spread is:

   Maximum profit = Width of strike prices – Premium paid

   Maximum profit = $105 – $103 – $0.60 = $1.40 per share or $140 per option contract

The breakeven point for this trade is when the stock price reaches:

   Breakeven = Strike price of long call + Premium paid

   Breakeven = $103 + $0.60 = $103.60

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

Example 2

A trader buys a call option for $50 and sells a call option for $55. The trade costs them $2. This makes their maximum loss for the trade $200, which they will lose if the stock option expires at a price below $50. If the stock option closes above $55, the trader will profit $300. The trader will break even at a closing price of $52.

The maximum loss and net debit for this call debit spread is:

   Premium paid = $2.00 (we don’t know the costs of each call but the total debit is given as $2.00)

The maximum profit for this call debit spread is:

   Maximum profit = Width of strikes – Premium paid

   Maximum profit = $55 – $50 – $2 = $3 per share or $300 per option contract

The breakeven point for this trade is when the stock price reaches:

   Breakeven = Strike price of long call + Premium paid

   Breakeven = $50 + $2 = $52

Maximum Gain, Loss, and Break-Even for Call Debit Spread

The maximum profit for a call debit spread is:

   Width of Strikes – Premium (Debit) paid

The maximum loss for a call debit spread is:

   Premium paid

The break-even point for a call debit spread is:

   Premium paid + Strike price of the long call

Recommended: How to Trade a Bull Put Spread

Why Trade Call Debit Spreads?

Traders choose to use the call debit spread option strategy when they are bullish on the underlying stock or asset.

Traders will also use the call debit spread strategy if they want to take a long position on an asset without actually spending all the money required to buy the asset itself. This gives them exposure to the asset with less risk and lower capital requirements.

Traders also use the strategy as a way to hedge against the risk of volatility collapse. If volatility collapses in a long call position, this can go poorly for an investor. But with the structure of a call debit spread, changes in volatility don’t have much effect.

Call Debit Spread Tips

Here are some tips for trading call debit spreads and some additional factors to be aware of before opening your first call debit spread.

Sensitivity to Theta (Time) decay

One factor that impacts call debit spreads is time decay, or theta decay. Theta is one of the Greeks in options trading.

If the underlying asset price is near to or below the long call (lower strike price) the trade will decrease in value as the expiration date nears. However, if the asset price is near to or above the short call (higher strike price) the trade will increase in value as the expiration date nears.

If the asset price is near the middle of the strike prices, time decay of the long and short call is offset and time erosion will have little impact on the price of the call debit spread.

Closing Call Debit Spreads

It’s generally a good strategy to close out a call debit spread before it expires if it is profitable. If it has reached its maximum possible profit, the position should be closed out to capture the maximum gain.

Another reason to close a call debit spread position as soon as the maximum profit is reached is due to the risk of your short call being assigned and exercised. To avoid this situation you may close the entire call debit spread position or keep the long call open and buy to close the short call.

If the short call is exercised a short stock position is created. You can close out the position with stock in your account, buy back stock in the market to close out your short position, or exercise the long call. Each of these options will incur additional transaction fees that may affect the profitability of your trade, hence the need to close out a maximum profit position as soon as possible.

Call Debit Spread Summary

Below is a summary of the key factors involved in a call debit spread:

Maximum Profit

 Limited
Maximum Loss Defined
Risk Level Low
Best For Prediction of an upward movement in stock price
When to Trade When bullish on a stock
Legs Two legs
Construction Short call + Long call
Opposite Position Call credit spread

The Takeaway

A call debit spread is a commonly used options trading strategy that can help traders have predictable risk and profits when they are bullish on the underlying asset.

If a trader wants to take a long position on an asset, but not have to buy the asset itself, they can use the call debit strategy — which gives them exposure to the asset with less risk and lower capital requirements.

It’s also possible to use this strategy as a way to hedge against the risk of volatility collapse.

If you’re ready to try your hand at online options trading, SoFi can help. You can trade options from the SoFi mobile app or through the web platform. And if you have any questions, SoFi offers educational resources about options to learn more.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/SDI Productions

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Feb
06
2023
Opening a Brokerage Account for Your Child

Opening a Brokerage Account for Your Child

By | Family Finances, invest, Investing | Comments Off on Opening a Brokerage Account for Your Child

Brokerage accounts for kids are generally custodial, with the parent or guardian managing the assets until the child reaches adulthood. Only the parent or guardian can open the brokerage account, even when the account bears the child’s name. When the child reaches maturity — the legal age varies by state — they would take possession of the account.

Overall, the process for how to open a brokerage account for a child is fairly straightforward.

Why open a brokerage account?

A brokerage account is an investment account that operates through a brokerage firm. When you open a brokerage account, you deposit money into it, then use that money to buy securities. You can also sell securities that you’ve purchased. Depending on where you open a brokerage account, you might be able to trade:

•   Stocks

•   Mutual funds

•   Exchange-traded funds (ETFs)

•   Real estate investment trusts (REITs)

•   Bonds

•   Foreign currencies

•   Options

•   Futures

•   Cryptocurrency

Some brokers may allow you to trade on margin, meaning you can borrow money to execute trades. (Trading on margin and investing in certain asset categories may not be available for custodial accounts, however.)

You may be charged commissions or other fees to execute trades, but there are no limits on how much you can invest. That’s roughly how a brokerage account works.

A brokerage account is not the same thing as a retirement account. When you sell assets at a profit in a brokerage account, you may have taxes due or other tax impacts. You can buy and sell investments at your own pace, withdrawing money as needed.

With an Individual Retirement Account (IRA), you can invest in many types of assets, but certain items (such as collectibles) are disallowed in most accounts. IRA holders must wait until age 59 ½ to withdraw funds without any tax penalty (some exceptions apply, such as disability). Early withdrawals from a traditional IRA are taxed at your ordinary income tax rate, plus you’ll generally incur a 10% additional penalty. When deciding on a taxable brokerage account vs. IRA, choose the one that furthers your financial goals.

Recommended: Popular Types of Retirement Plans

Can Children Have Brokerage Accounts?

They can, but they are not allowed access to the account’s money or assets. In almost all cases, such brokerage accounts are custodial, meaning the parent is responsible for managing the money until their child reaches adulthood.

Numerous discount brokers offer investment accounts for kids online. Some brokers have also introduced hybrid products for teens that allow them to save money, spend, and invest all in one place with the supervision of their parents.

If you’re looking for a hands-on way to teach kids about how markets work, a brokerage account could be a great idea. But if you want to teach them about money more gradually, a kids’ savings account might suffice for now.

Can a Child Have a Brokerage Account in Their Name?

A custodial account is technically in the child’s name, even though it’s controlled by the parent. So yes, a child can have a brokerage account in their name. Of course, they themselves can’t open the account without the help of a parent.

How to Open a Brokerage Account for a Child

Once you know how to open a brokerage account for your child, doing so isn’t too difficult.

The first step is choosing a brokerage that offers investment accounts for kids. Factors to consider in making your decision could include the range of investment options, how easy it is to access the account, and the fees.

The next step is deciding which type of account to open. There are three possibilities to choose from when opening a brokerage account for a child.

Opening a Guardian Account

A guardian account allows you to invest money on behalf of your child. All of the money in the account technically belongs to you, as does any tax liability associated with the sale of assets in the account. You (but not the child) can withdraw money from the account for any reason. Once the child turns 18, you can decide whether to hand the money in the account over to them.

Opening a Custodial Account

With a custodial account, the parent opens the account but the assets in it belong to the child. You can direct investment decisions while the child is a minor, and any tax liability is assessed at their rate. Withdrawals are allowed only for expenses benefitting the child. Once the child reaches adulthood, they automatically become the owner of the account.

Opening an IRA Account

If your child has earned income from a part-time or summer job (even babysitting or lawn mowing) for at least a year, you might consider opening a custodial IRA for them. With a custodial IRA, you direct the investments until the child turns 18 (or 21 in some states). At that point, the account becomes their property.

One key distinction: The IRA has annual contribution limits, but other types of custodial accounts do not. Each year the maximum contribution is the amount equal to the child’s total earnings; in 2023 the amount is capped at $6,500. (If a child earns no money in a given year, the maximum contribution is $0.)

The Roth IRA, which holds post-tax dollars, may be a better choice for a kid than a traditional one funded by pre-tax dollars. The benefits of the traditional IRA — such as lowering your taxable income during your earning years — won’t help a young person very much.

Types of Brokerage Accounts a Parent Can Open for a Child

When opening a custodial account for a child at a brokerage, you have two options: a Uniform Transfers to Minors Act (UTMA) account and a Uniform Gifts to Minors Act (UGMA) account. Most states recognize both account types. With either one, you control the account until the child reaches the age of termination, which in some places may be later than the age of majority.

UTMA Account

UTMA accounts allow minors to hold securities without the creation of a separate trust. This type of account permits you to hold many types of assets, including:

•   Stocks

•   Bonds

•   Mutual funds

•   Real estate

•   Fine art

•   Precious metals

•   Patents

•   Royalties

•   Shares in a family limited partnership

The IRS taxes earnings in a UTMA at the child’s tax rate, up to a certain limit. For 2023, the limit is $2,500. Any gifts made to a UTMA on behalf of your child are irrevocable, meaning once you put the money in it becomes theirs; you can’t take it back out again. Any withdrawals must be used to pay expenses for the child, such as school tuition.

UGMA Account

A UGMA account is similar to a UTMA account in terms of tax treatment and who actually owns the assets in the account. The main difference between a UGMA and a UTMA account lies in what you can invest in. For a UGMA account, those are typically limited to stocks, bonds, and mutual funds. So if you’re choosing between a UTMA and a UGMA, it’s important to consider which types of assets you’d like to keep in the account.

Investing for Kids

A brokerage account can be a useful teaching tool for helping kids to grasp such concepts as:

•   How investing works

•   Compound interest and why compounding matters

•   The importance and value of saving money

Kids who learn about money when they’re young are likely to have better financial habits as adults. Also, a study from Brigham Young University found that they have more satisfying interpersonal relationships in early adulthood because they’re less likely to stress over money.

Tips for Choosing the Right Broker

If you’re navigating how to open a brokerage account for your child for the first time, you may not be sure what an investment broker does or how to decide where to keep the account. When you’re seeking out the right broker, here are a few key questions you could ask as you narrow down the options:

•   Does this brokerage firm offer investment accounts for kids?

•   What types of brokerage accounts for kids are available?

•   Is there a minimum initial deposit to open the account?

•   What are the fees?

•   Which investments will I be able to trade in the account?

If you have an existing brokerage account for your child, consider whether moving it to a different broker makes sense. For example, you may want to move if you believe your current brokerage is charging too much in fees. If you do decide to switch, it’s easy to request a brokerage account transfer online.

The Takeaway

A brokerage account for your child would probably take the form of a guardian account or a custodial UGMA or UTMA account. Knowing what types of assets you intend to deposit may help you determine what kind of account works best for you. For kids earning wages, a custodial IRA may be a good fit, allowing 2023 contributions of up to $6,500.

Hybrid save-and-spend accounts designed for teens can help them learn about investing while under adult supervision. In all of these cases, the parent oversees the accounts until the child reaches adulthood.

If you’re looking to open an online brokerage account for yourself, SoFi offers easy all-in-one investing. You can open an investment account with SoFi and start trading stocks, ETFs, or IPOs, if you’re 18 or older. SoFi does not offer custodial accounts. SoFi doesn’t charge management fees, and SoFi members have access to complimentary advice from professionals.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Can I open a brokerage account in my child’s name?

Yes, you can open a custodial brokerage account for your child in their name. Transfers to a custodial account are irrevocable, but you’ll have control of the account and make the investment decisions until the child reaches adulthood. In the meantime, the assets in the account will belong to the child.

Can I open a brokerage account for a family member?

Generally, you can open a brokerage account for a family member only if that person is your minor child. You are allowed to establish a 529 college savings plan on behalf of other family members, including siblings, nieces, nephews, or cousins.

Can I buy stocks for my child?

Yes, you can purchase stocks for your child. You can make the purchases through a custodial account. There are also financial apps that allow you to purchase full or fractional shares of stock for your child.

Photo credit: iStock/Morsa Images

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jan
10
2023

Investing Survey: 85% of Investors Plan to Change How They Invest in 2023

By | Growing Wealth, invest, Investing | Comments Off on Investing Survey: 85% of Investors Plan to Change How They Invest in 2023

We don’t need to tell you that 2022 has been a challenging year for investors — what with interest rates soaring, the stock market plummeting, and the onset of another crypto winter.

What you might be surprised to know: There’s some good news here. In a recent survey, we asked 1,000 investors how they managed their portfolios in 2022, how they’re feeling about the market, and what their predictions are for 2023*.

While you might expect some anxiety or pessimism (and there was some), investors overall remain positive after a difficult year. Here’s what they had to say about stocks, crypto, how they coped with investing stress — and more.

Note: We rounded percentages to the nearest whole number, so some data sets may not add up exactly to 100%.

*The survey was completed on October 5, 2022 and was conducted using a general U.S. population data set of 1,000 adults age 18 and older. Survey did not include known SoFi members or a SoFi member data set.

Key survey facts and findings

2022 SoFi Investing Survey

Before we dig into the details, here are some of the standout results.

•  93% of survey respondents continued to invest, despite the current market conditions.

•  Men were more likely to invest than women, and invest more money as well.

•  78% of crypto investors are generally optimistic that values will rebound.

•  And remarkably: 1 in four (25%) of investors had no regrets about 2022

Last highlight: How did investors cope with stress in 2022? Hobbies!

In general, investors stayed the course in 2022.

While the market hasn’t been kind to investors over the past year, it certainly hasn’t stopped many of them from investing. 93% of our respondents kept invested in 2022.

2022 SoFi Investing Survey

93% of respondents have invested in 2022

When it comes to the amount people have invested so far this year, men were more likely than women to invest — and invest more money when they did:

•  $0 – $499: 24%

◦  Male: 44%

◦  Female: 56%

•  $500 – $999: 23%

◦  Male: 50%

◦  Female: 49%

•  $1000 – $4999: 26%

◦  Male: 57%

◦  Female: 43%

•  $5000+: 21%

◦  Male: 68%

◦  Female: 32%

Many investors are still hoping to cash in on crypto.

It’s no secret that the crypto market has taken a beating, especially with the crash of FTX . Nonetheless, people are still holding on to their crypto investments.

45% of respondents say they have cryptocurrency in their portfolios. 65% of them even said they invested more than $500 in 2022. Most crypto investors (65%) are male and under the age of 55.

45% of respondents have cryptocurrency in their investment portfolio.

Over the past few years, cryptocurrency has become a more widely-accepted investment vehicle. Many investors have invested in crypto this year. Of these investors:

•  65% have invested $500 or more in 2022

•  Less than 3% haven’t invested any money into crypto in 2022

•  Only 7% of respondents aged 55 or older are invested in crypto

•  65% are male

And of those who invested $5000 or more in crypto in 2022, 80% are male.

While the crypto market is currently in a steep decline, most investors with cryptocurrency in their portfolios have invested at least $500 in 2022. Here’s what crypto investing looks like in 2022.

•  $0 – $499: 32%

•  $500 – $999: 23%

•  $1000 – $4999: 26%

•  $5000+: 16%

Only 3% of investors who have cryptocurrency in their portfolio haven’t invested anything into cryptocurrency this year.

78% of investors are either confident or cautiously optimistic the crypto market will bounce back

2022 SoFi Investing Survey
The crypto market remains volatile as rumors of a global recession continue to swirl. Despite this financial climate, most investors are hopeful of the future.

Of the 45% of respondents who have crypto in their portfolio:

•  78% of investors are at least “cautiously optimistic” that the crypto market will bounce back

•  Only 5% of respondents believe crypto is “dead.”

Overall, the crypto market still has plenty of believers. Whether that optimism will pay off remains to be seen.

Nearly 90% of people have invested in non-stock market-related assets.

2022 SoFi Investing Survey

Non-traditional market assets are on the rise due to stock market volatility. In fact, nearly 90% of our respondents invested money into a non-stock-market-related asset. Crypto was the most common non-traditional investment choice.

Certificate of deposits (CDs), Real estate investment trusts (REITs), and gold were the next most popular options. One respondent even told us they invested in Magic the Gathering trading cards—definitely a niche investment choice, but representative of investments that aren’t directly impacted by the stock market.

Here’s a full list of all the responses we received:

•  Certificate of deposits (CDs): 24%

•  Real estate investment trusts (REITs): 20%

•  Gold or other commodities: 20%

•  Crypto: 48%

•  Private equity funds: 22%

•  Government bonds: 19%

•  Other or none: 11%

Here’s what investors’ portfolios look like right now.

2022 SoFi Investing Survey

Nearly a third (32%) of respondents have less than $25,000 in their investment portfolio. Here’s a breakdown:

•  $0 – $24,999: 32%

•  $25,000 – $49,999: 22%

•  $50,000 – $99,999: 21%

•  $100,000 – $199,999: 12%

•  $200,000+: 14%

Most investors (nearly 75%) also invest highly into stocks. Cryptocurrency, mutual funds, and cash were the next most popular investment types.

•  Stocks: 72%

•  Cryptocurrency: 45%

•  Mutual funds: 41%

•  Cash or cash equivalents: 38%

•  Bonds: 31%

•  Exchange-traded funds (ETFs): 30%

•  Real estate: 23%

•  Index funds: 21%

•  Private equity: 14%

•  Other: 2%

Market volatility has impacted investors’ purchase and investment decisions.

Market volatility has impacted investors at all ages and stages, but it hasn’t slowed them down. Not only have many people continued to invest during these uncertain times, market volatility has inspired investors to adjust their strategies and spending.

More than a third of respondents (37%) say market volatility has caused them to make impulsive investment decisions.

2022 SoFi Investing Survey
Market volatility has caused some investors to respond emotionally, with over a third of respondents (37%) saying market volatility has caused them to make impulsive investment choices.

31% of these impulse decisions were made by investors aged 18-24. In fact, the younger you are, the more likely you are to make impulsive or emotion-driven financial decisions. Here’s the age breakdown of those who made an impulse move due to market volatility:

•  18-24: 31%

•  25-34: 23%

•  35-44: 23%

•  45-54: 17%

•  Older than 54: 7%

Of all the people who made impulsive investment decisions, 54% of our respondents say they’re happy with their choice. Specifically, only 20% of them regret them.

Maybe these rash decisions taught investors important lessons about the market. Maybe some are confident they’ll rebound.

One third of respondents (33%) had to cancel or delay plans or purchases in 2022 because of money lost on investments.

Many investors’ finances were impacted by the bear market: 33% said they had to cancel or delay plans in 2022 because they lost money on investments.

Ultimately, these mistakes prevented some investors from going on vacations, buying homes, and starting businesses. When we asked those who had to cancel or delay plans specifically which plans were impacted, here’s what they said:

•  Going on a trip: 27%

•  Making a major purchase (home, vehicle, etc.): 22%

•  Home renovations: 19%

•  Starting a business: 15%

•  Growing my family (getting married, having a baby, etc.): 10%

•  Retiring: 6%

•  Other: 2%

Over half of respondents did not make any major investment changes.

2022 SoFi Investing Survey
Market volatility still isn’t scaring investors away. Over half, or 55% of respondents held on to their assets during this year’s economic crisis.

When we asked investors how they reacted to market swings this year:

•  29% said they bought a lot of investment

•  17% said they sold a lot of investments

•  55% said they did not buy or sell investments

The investors that did sell some of their assets (45%) ultimately relinquished less than half of their portfolio. Only 7% sold 76% or more of their total investments.

Many investors have investment regrets about 2022 and are looking toward 2023.

With 2023 on the horizon, many investors are planning to adjust their strategies based on the lessons they learned this year.

People are split on how inflation makes them feel about their investment strategies in 2022:

Inflation can be a thorn in the side of investors. Our respondents were split in how they approached inflation in 2022:

•  39% of respondents said they want to invest more, despite inflation.

•  33% said inflation makes them want to leave their investments alone.

•  28% said inflation makes them want to invest less.

Of the 39% who want to invest more, Gen Z appears to be the most optimistic (27% of that subgroup are between the ages of 18 and 24).

One thing is for certain — confident investors will continue to engage with the market despite inflation.

In general, people have mixed emotions about their investments in 2022, but the most common feeling was optimism (26%).

2022 SoFi Investing Survey

There was also some variance in how respondents feel about their investments. Most were optimistic, and fewer felt stressed, disappointed, and content.

•  Optimistic: 26%

•  Stressed: 19%

•  Disappointed: 19%

•  Content: 15%

•  Excited: 14%

•  Regretful: 5%

•  Angry: 3%

Very few felt regretful or angry, which could be welcome signs of more market participation in the coming year.

While 5% of respondents feel regretful, a full 25% — or one in four investors — have zero regrets about 2022.

That said, 75% of respondents have some type of investment regret this year. And many have learned major lessons this year. Mainly, many wish they had bought more assets at lower prices.

Some of the most common investing regrets respondents expressed:

•  They should’ve bought more crypto when prices were at their lowest (18%)

•  They should’ve bought more stock when the market started to decline (16%)

•  They should’ve sold stock before the market started to decline (15%)

Not everyone was regretful about their investing activities: As noted, 25% of respondents have no regrets at all. And of those that have no regrets, 60% are 45 or older.

Here’s the breakdown of the investment regrets respondents had this year:

•  I have no regrets: 25%

•  I should have bought more crypto while prices were their lowest: 18%

•  I should have bought more stock when the market started tanking: 16%

•  I should have sold stock before the market started tanking: 15%

•  I should have sold my crypto early in the year: 10%

•  I should have bought gold: 9%

•  I should have held onto stock when the market started tanking: 7%

People use a variety of tactics to cope with the stress of market fluctuations:

We got a lot of interesting responses about how investors have dealt with the stress that came from market fluctuation.

•  41% took their mind off their portfolios by engaging in hobbies.

•  37% did their own investment research.

•  31% of them simply stopped checking their balances.

•  22% of respondents talked with their brokers for reassurance. 17% participated in online forums.

And on a positive note, 14% said the markets simply didn’t stress them out.

Nearly a third of respondents (30%) check their investment portfolios every day. And 75% check at least once a week.

Although one coping mechanism of market stress was to avoid checking balances, 30% of our respondents (65% of whom were male) check their investments every day.

Most respondents check their portfolio’s performance at least once a week. Here’s how often investors are checking their investment performance.

•  Every day: 30%

•  2 to 3 times a week: 29%

•  Once a week: 17%

•  A few times a month: 12%

•  Once a month: 7%

•  Less than once a month: 7%

Looking forward to 2023

2022 is almost over and many investors are already looking forward to next year. Let’s see how our respondents plan to adjust their strategies in 2023.

85% of respondents plan to make some changes to how they invest in 2023.

While most respondents have agreed to change their plans, 21% of them want to invest more into the market.

Here are other ways people plan to change their investment strategies next year:

•  19% plan to do more of their own investment research

•  14% plan to work with a financial advisor

•  10% plan to buy into a new type of investment

•  9% plan to change the asset allocations in their portfolio

•  6% plan to decrease how much they invest overall

•  5% plan to use a robo-advisor or automated investing

•  15% don’t plan to change anything.

If this year has taught investors anything, it’s to adapt their strategies and stay optimistic. When asked how they planned to change their strategies, here is how investors responded.

Key Takeaways

Historically, market volatility tends to even itself out, and investment values typically rebound. Investors’ attitudes and behaviors tend to mirror this pattern. While markets have been low in 2022, there are signs of recovery as the year draws to a close, and people appear to be optimistic about an upswing and plan to continue investing.

If you’re ready to take advantage of buying when the market is low, online investing with SoFi Invest is an easy way to get started.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jan
02
2023
What Is the Chicago Board Options Exchange (CBOE)?

What Is the CBOE?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is the CBOE?

The CBOE is CBOE Global Markets, the world’s largest options trading exchange. While you may already be familiar with the New York Stock Exchange and Nasdaq, those are only two of the exchanges investors use to trade securities.

In addition to the option trading exchange, CBOE has also created one of the most popular volatility indices in the world.

Learn more about CBOE and what it does.

What Is the CBOE Options Exchange?

CBOE, or CBOE Global Markets, Inc., is a global exchange operator founded in 1973 and headquartered in Chicago. Investors often turn to CBOE to buy and sell both derivatives and equities. In addition, the holding company facilitates trading over a diverse array of products in various asset classes, many of which it introduced to the market.

The organization also includes several subsidiaries, such as The Options Institute (an educational resource), Hanweck Associates LLC (a real-time analytics company), and The Options Clearing Corporation or OCC (a central clearinghouse for listed options).

The group has global branches in Canada, England, the Netherlands, Hong Kong, Singapore, Australia, Japan, and the Philippines.

CBOE is also a public company with a stock traded on the cboe exchange.

What Does CBOE Stand For?

Originally known as the Chicago Board Options Exchange, the company changed its name to CBOE in 2017.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

History of the Chicago Board of Options Exchange

Founded in 1973, CBOE represented the first U.S. market for traders who want to buy and sell exchange-listed options. This was a significant step for the options market, helping it become what it is today.

In 1975, the CBOE introduced automated price reporting and trading along with The Options Clearing Corporation (OCC).

Other developments followed in the market as well. For example, CBOE added “put” options in 1977. And by 1983, the market began creating options on broad-based indices using the S&P 100 (OEX) and the S&P 500 (SPX).

In 1993, the CBOE created its own market volatility index called the CBOE Volatility Index (VIX). In 2015, it formed The Options Institute. With this, CBOE had an educational branch that could bring investors information about options.

CBOE continues its educational initiatives. The Options Institute even schedules monthly classes and events to help with outreach, and it offers online tools such as an options calculator and a trade maximizer.

From 1990 on, Cboe began creating unique trading products. Notable introductions include LEAPS (Long-Term Equity Anticipation Securities) launched in 1990; Flexible Exchange (FLEX) options in 1993; short-term options known as Weeklys in 2005; and an electronic S&P options contract called SPXpm in 2011.

Understanding What the CBOE Options Exchange Does

The CBOE Options Exchange serves as a trading platform, similar to the New York Stock Exchange or Nasdaq. It has a history of creating its own tradable products, including options contracts, futures, and more. Cboe also has acquired market models or created new markets in the past, such as the first pan-European multilateral trading facility (MTF) and the institutional foreign exchange (FX) market.

The CBOE’s specialization in options is essential, but it’s also complicated. Options contracts don’t work the same as stocks or exchange-traded funds (ETFs). They’re financial derivatives tied to an underlying asset, like a stock or future, but they have a set expiration date dictating when investors must settle or exercise the contract.That’s where the OCC comes in.

The OCC settles these financial trades by taking the place of a guarantor. Essentially, as a clearinghouse, the OCC acts as an intermediary for buyers and sellers. It functions based on foundational risk management and clears transactions. Under the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.

Recommended: How to Trade Options

CBOE Products

Cboe offers a variety of tradable products across multiple markets, including many that it created.

For example, CBOE offers a range of put and call options on thousands of publicly traded stocks, (ETFs), and exchange-traded notes (ETNs). Investors use these tradable products for specific strategies, like hedging.

Or, they use them to gain income by selling cash-secured puts or covered calls. These options strategies give investors flexibility in terms of how much added yield they want and gives them the ability to adjust their stock exposures.

Investors have the CBOE options marketplace and other alternative venues, including the electronic communication network (ECN), the FX market, and the MTF.


💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

CBOE and Volatility

The CBOE’s Volatility Index (VIX) gauges market volatility of U.S. equities. It also tracks the metric on a global scale and for the S&P 500. That opens up an opportunity for many traders. Traders, both international and global, use the VIX Index to get a foothold in the large U.S. market or global equities, whether it’s trading or simply exposing themselves to it.

In late 2021, CBOE Global Markets extended global trading hours (GTH) on CBOE Options Exchange for its VIX options and S&P 500 Index options (SPX) to almost 24 hours per business day, five days a week. They did this with the intention to give further access to global participants to trade U.S. index options products exclusive to CBOE. These products are based on both the SPX and VIX indices.

This move allowed CBOE to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended GTH could help them to do so. With it, they can react in real-time to global macroeconomics events and adjust their positions accordingly.

Essentially, they can track popular market sentiment and choose the best stocks according to the VIX’s movements.

Recommended: How to Use the Fear and Greed Index to Your Advantage

The Takeaway

While CBOE makes efforts to educate and open the market to a broader range of investors, options trading is a risky strategy.

Investors should recognize that while there’s potentially upside in options investing there’s usually also a risk when it comes to the options’ liquidity, and premium costs can devour an investor’s profits. That means it’s not the best choice for those looking for a safer investment.

While some investors may want further guidance and less risk, for other investors, options trading may be appealing. Investors should fully understand options trading before implementing it.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/USGirl

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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