Evan Williamson is sharing his ideas about investing with you. Evan believes that the markets are rigged, complex, and no one truly understands them. From 2000 to 2002 , he lost a lot of money but made some of it back a few years later. From 2006 to 2008, he lost money again and decided to stop investing for a period of time. He just couldn’t tolerate the ups and downs of the market. Evan is now invested in stocks and bonds but is still fustrated because he missed most of the bull market. Additionally, he thinks stocks may be priced too high and interest rates may be too low. Clearly, the “buy and hold” strategy is not working for Evan.
After listening to Evan, you suggest that depending on Evan’s risk tolerance, he might consider broadening his investment horizons by adding options to his portfolio. If Evan has a stock or ETF that he wants to protect for a certain amount of time, options can be one way to achieve that.For example, Evan may have a position that he wants to sell, but doesn't want to liquidate in the current calendar year for tax reasons. Selling it next year would be better for Evan but he is afraid of the stock losing value.
Describe the mechanics as well as the costs and benefits of options to Evan. Consider both short and long positions in your discussion.