Know Your Options

Trading puts and calls is dangerous, but as a hedge in this rough market, options make sense

If you found out that Grandma was trading options on individual stocks, you would probably want to fire her broker. After all, the confusing world of "puts" and "calls," with its esoteric language and strategies, not to mention extreme levels of leverage, can bankrupt even accomplished speculators in a matter of days. So what on earth is Grandma doing putting on a "bull call spread"?

Buying insurance, Sonny. When used wisely, options are an effective way to hedge risk. That's one reason options volume, which has exploded in recent years, continues strong even amid this year's market turmoil. Accessibility is another...

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