Calls
Calls, which give an investor the right to purchase a security in the future at a certain price, can be used in a couple of ways to minimize the risk associated with not being fully invested in a market at a given point. Since calls can be purchased relatively cheaply in a falling market, investors who are feeling optimistic that a turnaround is coming but are afraid to invest their funds can still profit by investing a small portion of their funds into calls. Through this small investment in a call, investors can create the opportunity to profit from an upswing without having to risk investing all their funds in a market that may decline further.
Second, in a flat or down market, an investor can increase the income on flat or declining positions by selling calls to other investors on those positions. Known as “writing covered calls,” this strategy can generate a decent amount of income to offset the decline i