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Chapter 3. Options in Context > The Nature of Risk and Reward - Pg. 27

27 Chapter 3. Options in Context Option risks affect how we proceed; perceptions, sometimes false, inhibit us from taking full ad- vantage of the conservative potential of options. This chapter provides valuable details about de- signing conservative short positions, special margin requirements for option strategies, and calcu- lating option returns on a comparative basis. Any investment strategy--from plain to exotic--contains specific attributes and can be defined in terms of risk, rates of return, and specific strategies for various market conditions. Options are probably the most flexible investment products available. They can be used alone, in combination with other options, or as hedge devices to protect other positions. Options can help you to exploit market price swings, and they can be utilized in very speculative or in very conservative ways. Identifying the conservative applications you can use makes options a tool within your long-term portfolio and requires that you view options trading in at least two classifications. First, the primary options trader is someone who uses options as the main vehicle for producing profits. The trader is willing to take higher risks and uses long positions mainly as coverage to reduce option risks or, at the very least, may choose stocks due to their volatility and technical attributes more than for any