ISSN: 1817-5880

Author : Jawad Kadhim, Hussein

Use the Theory of Financial Options and Portfolio in reduction Investments Risks : A Case Study on Iraq Stock Exchange

Hussein Jawad Kadhim; Hussein Karim Saidi

Gulf Economist, Volume 32, Issue 29, Pages 1-25

Because of increasing risks that facing the investors in financial markets the present study endeavoured to provide a knowledge and practical framework about the ability of contracts options in reducing risks of stocks prices for the selected sectors listed on the Iraq Stock Exchange by using the most important financial theories, namely portfolio theory and the theory of financial options, to show the role of the policy of diversification in reducing irregular risks, as well as the prominent role given by the covered call option strategies to benefit from expectations of the current and future stock prices , that would contribute to the hedging of risks.
The present study has reached a set of conclusions, including that the reduction of irregular risk depends on aimed diversification, which focused on the importance of correlation coefficients of returns, while the application of covered option strategy based on binomial model on efficient portfolio led to the advantage of the value of premium paid by the call option holders , that prices as long as witnessed a large fluctuations during the period under study, which proves the validity of our hypotheses through the study on the possibility of obtaining the best trade-off between return and risk when diversifying portfolios ,and that their possibility of reducing efficient portfolio risks by using the strategy of sale covered call option.