The world of investing is vast, and, at times, complicated.
Part of leveling up your investing game is understanding what’s out there, and how it may fit with your portfolio, and risk tolerance. Or not! That’s right, investing is just as much about knowing what isn’t right for you.
One investment type that may leave you intimidated is options. So let’s break it down: An option is a financial instrument tied to an underlying asset. They are a type of derivative, named for their relation to their underlying assets that determine their value.
In practice it may look like this: Instead of buying a stock outright, an options contract allows the buyer to potentially profit from price changes in that stock without actually owning it.
You can also use options to protect existing positions you have. For example, if you own a stock that has risen in value, and want to protect your gains, you may buy an option to sell it at a specific price. That way, if the value of your stock falls further, you have locked in a sale price ahead of time.
That’s pretty nifty, but options also come with more risk than more “regular” investments, as they can result in steep losses. Learn more about options trading for beginners here.
Why do People Trade Options?
Watch the video below, where financial educator Ro$$ Mac shares 4 reasons why investors might consider trading options. Whether investors are looking for flexibility or income, he breaks down why options may help as part of an overall investing and financial strategy.
Interested in options? SoFi’s trading platform offers access to options from the mobile app or the web. Head to your SoFi Invest account to get started.
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