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Options Trading for the Institutional Investor: Managing Risk in Financial Institutions by Michael C. Thomsett

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12. Risk Evaluation Techniques

Conservative investors have to define levels of risk as the means for selecting appropriate strategies. However, “risk” is not a singular factor. You must contend with many types of risk, and not all of these relate specifically to options. Many forms of risk apply to the dilemma of picking investments that yield acceptable rates of return, but with a low enough risk to qualify. This “zone of risk/profit” is narrow. This chapter examines the many forms of risk and demonstrates why options are not the problem, but could provide the solution to the risk question.

Options belong in the conservative portfolio, not solely as a money-making set of strategies, but also as a portfolio- and risk-management tool. The specific ...

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