Hedge funds continue to be one of the most dynamic users of both exchange-traded and OTC options, especially in the US, but certain managers could still not be using the opportunity that these instruments can provide them.

Equity-based investment strategies manage hedge funds, which account for a large portion of the equity options market. Several funds focus on the liquid US equity markets and use single stock options, ETF and index options to hedge risk.

Types of Option-Based Strategy

Defensive

Covered put or call options have always been a feature for the long/short equity manager, especially in markets where there is an extensive availability of single-name contracts.

For e.g., in Asia, the choice of single name options is extremely restricted, managers are still dependent on OTC contracts or basic volatility strategies.

The equity hedge fund could use index based puts and calls to economically hedge upside or downside exposure. Managers have been able to concurrently profit from both long and short positions using options. But, it is hard to accomplish constant returns on the short side during an upward-trending market as call selling is not a ‘set and forget’ strategy.

There are extremely sophisticated defensive strategies that regularly make use of options such as hedging tail risk. Hedge fund managers are very careful, as a result of the global financial meltdown in 2007-08. They need to assure investors that the fund is ready for the next black, grey or swan event.

It has also been realized that the value of put options (not only equity puts) collapsed during occurrences of high volatility (e.g. the credit crisis and the flash crash), resulting in more fund managers exploring options as a substitute to defensive cash and Treasury bond holdings.

Covered call selling and yield improvement

The transaction of covered calls by hedge funds is preferred during phases when fund managers are comparatively neutral on the market. This creates premium income and reduces the probable downside exposure of a long underlying position.

One of the major risks with a yield-based strategy is that the holder of the option chooses to exercise it to secure the dividend. Though the best profit and breakeven are understood from a risk management outlook, the possibility of the option being exercised is also extremely quantifiable, with a delta of .95 or above being an excellent benchmark.

There is also a possibility of an early assignment risk for American style options as the long holder of call options could exercise at any time prior to expiration, but most likely when the dividend is more than the excess premium over intrinsic value.

Volatility

Volatility-based strategies make the best use of options, with implicit volatility viewed as one of the most vital constituents of options valuation.

Several hedge funds utilize options to speculate on the direction of implied volatility. For e.g., using CBOE® VIX® options or futures. Since implied volatility itself trades within a dimension that could be described through technical analysis, a fund could focus on the probable buying and selling points specified through traditional price bands.

Arbitrage

Options could be utilized by the activist fund to take advantage of various arbitrage conditions. Volatility arbitrage has progressed from a hedging method to a strategy in its own right. There are a large number of hedge funds trading volatility as a pure asset class.

Essentially, hedge fund options desks could arbitrage options prices on their own, instead of using them to arbitrage other asset classes, using various options recorded on a similar asset to take advantage of relative mispricing.

Dispersion Trades

The dispersion trade has become very prominent with hedge funds that would like to bet on an end to the high-level of correlation between the huge stocks that create index constituents. A fund manager would normally sell options on the index and buy options on the individual stocks comprising the index.

If maximum dispersion happens, the options on the individual stocks generate income, while the short index option loses only a modest quantity of money. The dispersion trade is efficiently going short on correlation and going long on volatility.

The investment manager requires having a proper insight on when such a situation is likely to occur and investors look to focus on data from individual stocks instead of taking a vanilla ‘risk on, risk off’ tactic to equities.

Tail risk funds

It is a fund developed to deliver liquidity in the event of specific risks happening (for instance stock markets crashing by over 20%). It has become a popular portfolio constituent for investors requiring to meet liabilities in the event of market liquidity declining.

Options are a vital asset class used for algorithmic funds because of the increased use of electronic trading for options transactions. One of the important selling points for hedge funds has been the liquidity and operational effectiveness related to exchange-traded options.

Increasingly, hedge funds are implementing weekly options to control positions, allowing successful positions to be developed quickly. They could also deliver competitively priced downside safeguard.

As the options sector continues to develop, further prospects would occur for hedge fund managers.

This would stem not only from the enlargement of the product group available but also from the improved operational effectiveness and transparency delivered by exchange-traded and cleared products. Regulatory demands for a very dynamic marketplace would also play a significant role.

The uncertain condition of today’s economy is not encouraging investors. This lowered investment trend can be traced back to the past 5 years where investments have been slow with subscriptions to how to manage your investment holdings magazines taking a dip. Many investors are uneasy over investing their money into a volatile market as stocks have been plummeting in value in recent years, with small rebounds here and there, now and then. This does not give investors enough confidence although there are many investing associations that offer courses or tips on how to manage your investment holdings.

Good Monitoring of Investment
It is crucial to monitor your investments especially in this time of market uncertainty or volatility. Choosing the best investments is no guarantee of positive returns, much less huge returns, if you are not tracking the movements of your portfolio. As in any investment, there will be profits and losses; you can waste a lot of time and your hard earned money if you do not have good tracking habits or strategies such as proper record keeping. It is essential for any serious investor to review their portfolio’s performance when you are serious about how to manage your investment holdings for good returns.

There may be taxes that are incurred, retirement computations which may lead you to make further decisions on your portfolio or opportunities that come by your way to grow your wealth. There are now many online resources for your picking to assist you on how to manage your investment holdings by keeping careful records on every investment you make, be it stock, bond, mutual fund or security. Once the easy setup is done, you will only need to commit to a weekly or bi-weekly check up on the performance of your portfolio. This way, you will not be taken by surprise on any adverse news as you monitor the organizational news of your portfolio.

Online Investment Services
Online investment tracking services will update your portfolio automatically to reflect any price changes on a daily basis with a re-computation of your assets. They also assist in comparisons of your investments to your targets and the expected returns of your portfolio. These online investment services also alert the investor on potential purchases to add on to your portfolio. They may even have tips on how to manage your investment holdings that will benefit you.

Self-directed investing
This is for those who want to manage their own portfolio; those of you who might be retirees and are keen on how to manage your investment holdings can consider monitoring your own investments with a sufficient bit of basic understanding of the various investment types available for your own consideration. You will need to be familiar with tax consequences as well as investment earnings and related costs with any investment you plan to undertake.

You will need to be computer savvy if you are engaging technology in your own monitoring of your portfolio as well as be comfortable with the investment terms and conditions.

Self-directed investment requires online accounts monitoring, evaluation and understanding before an investment transaction can be performed. There may be a substantial online research required to confirm or refute financial assumptions.

Other factors
There is still a need to engage an investment company or professional broker to perform some of your trades or investments. An online broker may charge certain fees for his services. You should check out the reputation and performance of online brokers first before engaging their services.

When you get going on how to manage your investment holdings, you may need to consider it as a long term goal so that you are able to pace your time and effort on the portfolio that you are going to set up. A good investment plan is usually for the long term to enjoy its good returns. Discipline and patience are two virtues that are required when you want to manage your own investments as most stocks do not bring in huge returns in the short run. It’s a great commitment to those stocks which you think will fare well in the long run.

Whether you are an individual or a corporate body planning your investments ahead is of at most importance. As planning your investments means planning your future financial status and meeting unforeseen with ease and confidence it has become life blood that makes your path of hardships a bed of roses. Planning your finances involve planning your inflows and outflows i.e., In short managing the entire flow of funds during a certain course of time.

Thus, it is a must for anyone to plan your investments well in hand so; that your future will be safe and you can encounter any issue with ease and comfort. A proper investment planning would make your financial distress also a bliss as you always have a surplus reserve for different unforeseen of life. The reasons for financial distress could be multitudinous but the survival rate is higher and quicker for those who are financially planned when compared to those who are not. For having a proper investment planning you must follow few but regular steps which will save you at the eleventh hour. Let us look at few steps that you must follow to cushion yourself financially and to get a tag of well investment planner.

• The first and foremost step in investment planning is to assess your income. Asses all your inflows, which must include any sort of long term or annual cash inflows that you are expecting.

• Once you assessed your cash inflows, the next major step is to set a goal that could be any specific aspect that you would like to achieve with the money you are going to save from this year onwards.

• Once you set forth your goals and assess your inflows the next step is to plan your savings. The other way planning your investments. To plan your investments well you must know what your risk coefficient is and how much profits you want to make out of your little investments. To know this you must look at variety of financial and demographic and socio- economic factors that affect you and your family’s lifestyle.

• Once you are done with the assessment of your risk coefficients and return expectations the next big leap is to set an investment strategy. Under this, you will choose among different investment alternatives that are available to you based on your risk and profit margins.

• Once you choose a basket of investment options, go with the ones that are convenient for you in terms of time horizon, maturity period and return margins and so on. Having a clear investment strategy would not only make you a good investment planner but also a supersaver to your own self and to your family at times of emergencies.

The decision to invest is one of the most difficult economic decisions and the most dangerous, because it is associated with many factors and variables, which are often difficult to predict their behavior and trends of development.

Foreign investment is the vital and effective element to achieve economic and social development, as any initial increase in investment will lead to double and cumulative increases in the interior through the so-called investment multiplier, and an increase in income must go part of it to increase investment through the so-called accelerator.

The investment has received great attention in the literature of economic development because it is one of the factors affecting the national product, which in turn stimulates demand for production goods, as well as the fluctuations in investment affect income and employment.

The field of investment represents the type or nature of the activity in which the investor wishes to invest his money in order to obtain a return, in other words, the entity or space in which the investor intends to invest his money. When we say domestic and foreign investments we mean investment, while when we say real estate or securities, we define the tool used.

In short, when we talk about the field of investment, we mean a certain economic sector, while we mean the investment tool when we talk about the origin of financial assets or real.

It seems that the investment goes naturally towards countries whose currency is strong and at a constant high or at least does not fall in the near term and not the countries that suffer from rapid inflation and the collapse of the currency, but this rule is not fixed all the circumstances and in all places. It is enough that the investor enter his money in the currency of that country (ie, the country with a strong currency) and recover it after a period to find that the value of his money has increased, except for the profit that came during those cities if he was a citizen of those countries that melt their currency and rise in inflation rates.

In most cases, investment in tourism and travel depends on the same business principles as in the rest of the economic sectors. But in some cases investment in the tourism sector is made for non-commercial reasons as in the following cases:

1. Many countries invest in the tourism industry for social and environmental reasons rather than purely commercial goals.

2. In many cases, institutions such as banks invest in the tourism sector for non-commercial purposes, but more importantly, the substantial growth in the capital value of the property compares with those assets whose value declines over time.

Some investments are made for lifestyle reasons. Some people buy yachts, a leisure farm, horseback riding, leisure centers and commensurate with their lifestyle for individual or social reasons.

Internationalization has historically taken place in the economy that exchanges goods internationally. In other words, the free market preceded the capitalist economy. This internationalization of economic life represents an objective trend towards the transformation of closed domestic markets into open markets worldwide. The collapse of the feudal system and the growing importance of international trade, In the sixteenth century to the emergence of the elements of business thought whose ideas were crystallized by a group of heterogeneous writers later called the name of the commercialists (Thomas Mann, Jean Colcier), the topics have been crystallized between the two traders, necessarily The state’s intervention in economic life, to achieve an appropriate trade balance that contains surplus with the increase of the state’s economic strength by increasing its population achieve an accumulation of psychological minerals money which is the basis of wealth.