Should You Use Options In Your Investment Portfolio? How Do Options Work in Investing?
Build Wealth Canada Podcast
The Advantages of Using Options
If you have five thousand dollars to invest, you can buy more cor options than what you can buy in the stock itself. The second advantage of using options is that you have predefined risk. So let's say if you buy stock instead of going up wi tanks, then you're ging to be losing money. If the stock goes bankrupt or something happens to it, then you lose everything.
I always thought it would be neat to interview someone, that is actually part of the organization that runs the Toronto Stock Exchange.
Most of us have the majority of our retirement savings in ETFs or stocks and so it makes sense to actually have some understanding of the exchanges here in Canada, how they work, and the relationships that exist between the brokerage that you use to actually buy your investments, the stock exchange itself, and the governing bodies and regulators that are there to ensure that investors like you and I are protected.
To help us with this, I have Richard Ho on the show. Richard works for the TMX Group, which is the organization that actually runs the Toronto Stock Exchange, the Montreal Exchange, and other exchanges that we'll learn about today, here in Canada.
One of Richard's responsibilities, is leading educational initiatives to help improve investor education, for Canadians like you and I.
One of the educational initiatives that I wanted to really highlight, is that Richard and his team have put together a free to enter competition, with a $10,000 grand prize, and 7 weekly prizes of $500 each. The competition revolves around investing using options.
If you've ever wanted to learn more about what options are, and how they can be used to make money, definitely listen to this episode, but also take part in this free competition as it's a risk-free trading simulation contest, with a lot of educational resources.
The way that it works is that you have a virtual portfolio of $100k, and the question is: Can you strategize and trade options to earn the highest returns in hopes of winning the weekly cash prizes, a $10,000 grand prize and bragging rights as Canada's Top Options Trader?
The contest runs for 8-weeks and kicks off on September 19, 2022. You can register for free here.
There's no entry fee, it's just good education on the subject, and a way that you can try options as a tool in your investment portfolio, without actually risking any of your own real money.
So good luck, and now let's get into the interview with Richard.
Our Expert Guest:
I've invited Richard Ho, DMS, CAIA, FCSI, Director of Equity Derivatives and Customer Relationship Management at TMX Montréal Exchange, who is responsible for leading educational initiatives and partnerships with brokerage firms to discuss what makes this contest exciting, how it differs from past editions, and the educational component surrounding it.
Richard also collaborates on Option Matters, a Montréal Exchange blog whose mission is to help individuals increase their knowledge of the options market.
Resources Mentioned:
- You can enter the contest for free here (it runs from September 19th 2022 to November 11th 2022).
More educational resources:
Education on Options: optionmatters.ca
Montreal Exchange Education Resources: m-x.ca/education
Montreal Exchange Equity Derivatives & Options Education: m-x.ca/options
The Montreal Exchange Main Site: m-x.ca/en
The main TMX site (where all the Canadian exchanges are): tmx.com
Questions Covered:
- To set the foundation, can you take us through the different exchanges here in Canada. For instance, most of us know about the Toronto Stock Exchange, but what are the other exchanges in Canada? and what do we need to know about them as Canadian investors?
- You are part of the TMX Group. Can you explain what the relationship is between the TMX Group, and these exchanges? And where can we go to learn more, for anybody that wants to dive deeper?
- Since the exchanges are such a critical component in Canada's economy and our personal retirement savings, how are investors protected? I imagine there is a lot of government regulation and monitoring?
- Options have become a very popular topic lately, yet most of us haven't been taught anything about them when in school. For somebody completely new to options, can you give us some detail on what options are, how they work, what type of investor they tend to be suited for, and where can we go to learn more about them?
- A lot of the investors on the show (myself included) are DIY, passive, total market index investors. Options seem like a tool that we can learn about and have in our arsenal, to use when needed.
- What purpose can they serve for a passive do-it-yourself investor that typically just tries to buy the market as a whole using ETFs? And how much of a time commitment is it to learn how to do it properly?
- When it comes to the work that you and your team do, what are your actual goals or mandate? For instance, the TMX Group is a publicly traded company on the Toronto Stock Exchange, just like other for-profit companies, yet you don't actually sell anything to DIY Canadian investors like myself, and I noticed that your team also produces a lot of educational content for Canadian investors like optionmatters.ca, and you even do contests and competitions to encourage investor education. How does all that work?
- Can you tell us more about the free-to-enter competition that you have coming up?
- For anybody that maybe doesn't feel comfortable entering the competition yet, or is listening to this podcast episode months after the competition has already taken place, where can they go to learn more and access the different free investor education resources that you and the team have put together?
- Can you take us through any basic options strategies that investors can try out, both during the contest and/or in real-life?
- Tell us again where we can go to access more of the free investor education tools that you have available, as well as where we can signup, for free, to the Options Trading Simulation Contest.
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