Ask the Institute

Ask the Institute Archive

DATE: June 22, 2001

QUESTION:
Is it true that by their nature options are short-term instruments and forecasting short-term price movements is nearly impossible?

ANSWER:
Numerous investors prefer to trade shorter-term options. But if someone has a different time frame in mind, the options market may still be able to meet his or her investment needs. In fact, for all optionable stocks, options with expiration dates of six to eight months are listed for trading. For a more limited group of stocks (the ones with the more active and liquid options), longer-dated options, known as LEAPS, are also listed for trading. LEAPS give investors the possibility of establishing option positions of anywhere from nine to a maximum of 32 months. So if your outlook is based on longer-term forecasts, LEAPS may provide you with the leverage and limited risk similar to short-term options.




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