Equity Investment has the edge over merely saving money in your bank account. Investing in equity & financial derivatives markets helps to beat the inflationary pressure by delivering a higher return rate and increasing the value of the principal amount invested. Capital Gains and periodic dividend income is the revenue source from equity investments.
Hedging a position is usually done to protect against or to insure the risk of an asset. For example, the owner of a stock buys a put option if they want to protect the portfolio against a decline. This shareholder makes money if the stock rises and gains or loses less money if the stock falls because the put option pays off.
Derivatives can significantly ? increase leverage. Leveraging through options works exceptionally well in volatile markets. When the price of the underlying asset moves significantly and favorable, options magnify this movement. Many investors watch the Volatility Index (VIX) to measure potential leverage because it also predicts the volatility of Index options. For obvious reasons, high fluctuations can increase the value and cost of both puts and calls.
Investors also use derivatives to bet on the future price of the asset through speculation. Large speculative plays can be executed cheaply because options offer investors the ability to leverage their positions at a fraction of an underlying asset's cost.
Pritesh Shah is registered with the Securities and Exchange Board of India (SEBI) as an Individual Investment Advisor under SEBI (Investment Advisers) Regulations, 2013. Registration granted by SEBI does not imply endorsement. Investments are subject to market risks.
