Real estate investment technology company Skyline AI is collaborating with commercial real estate lending, investment and advisory firm Greystone in a deal that will use both companies’ tech platforms for the greater good.
The partnership combines Skyline AI’s artificial intelligence expertise, Greystone’s industry-leading real estate finance sector expertise, and the advanced AI and machine learning capabilities of Greystone Labs – Greystone’s technology innovation department – to boost deal performance and the loan underwriting process.
Leveraging its strengths in artificial intelligence and data science technology, Skyline AI will obtain key industry insights from Greystone Labs, increasing the breadth and depth of data available to exponentially boost the performance of Skyline AI’s asset performance predictions. Greystone Labs will also receive access to Skyline AI’s technology, which will strengthen their specialized team of underwriters, empowering them to underwrite loans 10x faster and with greater accuracy. This mutual exchange of insights will bolster both companies with the technological prowess to outperform the market in their respective endeavors.
“Value is the DNA of every deal, and joining forces with Greystone Labs will unleash the ability of advanced AI and data science to restructure how deals are underwritten, financed and acquired,” said Guy Zipori, Co-Founder and CEO of Skyline AI. “Together, our powerful platforms will derive insights with unprecedented speed to enable improved deal flow with precision analysis that will inform investors and financiers alike.”
Skyline AI uses the most comprehensive data set in the industry, mining data from over 100 different sources, analyzing over 10,000 different attributes on each asset for the last 50 years. Powered by natural language processing and high-performance data infrastructure, all data is compiled into one large “data lake,” and then cross-validated to make sure the data used is accurate. This enables Skyline AI to provide, within seconds, a deep assessment and the most accurate actionable predictions about any real estate asset in the United States.
“At Greystone Labs, we’ve blended software engineering, underwriting and data science in order to underwrite thousands of loans in a fraction of the typical timeline,” said Zac Rosenberg, Director of Greystone Labs. “Our collaboration with Skyline AI will allow us to combine our industry expertise in both lending and investment with their expertise in data science and artificial intelligence. Together we will push even further into leveraging artificial intelligence in our underwriting models to surface insights previously impossible to achieve.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
Inside: Are you looking for a safe and convenient way to buy and sell gift cards? If so, CardCash may be the perfect option for you. This comprehensive review will explore everything you need to know about this popular online marketplace.
Gift cards often seem like the perfect hassle-free gift solution, but receiving a card from a retailer that doesn’t align with your interests can result in unused potential and wasted money.
This is a common occurrence, with Americans currently holding around $21 billion in unused gift cards (source).
I know I have plenty of unused gift cards – probably around $300 worth laying around.
In response, companies like CardCash.com have stepped in to make these cards useful again and alleviate this universal frustration.
The simple goal is to help you extract value from those unwanted or unused gift cards by providing a platform to sell them safely. The solution not only converts unused cards into cash but also offers the opportunity to swap them for discounted cards from preferred retailers or a prepaid Mastercard.
Here is my CardCash review on the simplicity of getting cash for my unused gift cards.
In an era of savvy shopping and financial mindfulness, CardCash is a promising solution to make the most of every gift card.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is CardCash?
CardCash is a valuable online platform you can tap into for buying, selling, and exchanging gift cards. A brainchild of Elliot Bohm and Marc Ackerman, it was launched in 2009 with the goal of solving the problem of unused gift cards in America.
Via the CardCash platform, you can:
Sell your gift cards for up to 92% of the card’s value based on the popularity of the retailer.
Use CardCash to purchase gift cards, at a discounted rate, in bulk from over 1100 brands including big names like Amazon, Walmart, Starbucks, and CVS.
Swap your gift card for another retailer. You won’t get the same value though.
Remember, though, you won’t quite get the full value of your card as CardCash keeps a small percentage.
Does CardCash pay you instantly?
No, CardCash does not provide instant payments with cash.
Instead, after your order is approved, payments are typically made within a 48-hour window. This is due to standard processing times.
However, if you select another gift card. That will be available once your order is approved.
The invoice for the gift card claims to offer approximately 92% of the card’s value, but it’s worth noting that the actual payout can be lower at times.
How Does CardCash Work?
CardCash is a brilliant platform if you’re looking to sell, buy, or exchange gift cards. Here’s a quick guide on how you can get started:
Sign up on CardCash.com.
To sell a gift card, enter the merchant’s name and the balance on the gift card.
CardCash will give you an offer; if you accept, you get paid via mailed check, ACH payment, or PayPal. Or you can opt for a Prepaid Mastercard or another retailer gift card of your choice.
To buy a gift card, browse through the list of available cards and pick one that suits you.
Proceed to payment and enjoy your discounted gift card!
Pro Tip: Always check the price differences between the card value and the purchase price for the best deals.
How much does CardCash pay for gift cards?
Contrary to what CardCash claims, you won’t receive the full 92% of your gift card’s value.
The actual amount you’ll get depends largely on how popular the issuing merchant is. For popular sellers like Amazon or Walmart, you might get closer to their claim, but not always.
Sadly, for less-known retailers, offers might sink as low as 50% of your gift card’s worth.
Pros of CardCash
Considering an online platform for buying, selling, or swapping gift cards? CardCash is definitely one to consider.
Personally, I wanted to test it out and today you can find my CardCash Review.
The distinct features of CardCash include:
A wide selection of gift cards from over 1100 retailers
Instant payment in cash or a swap for another gift card when you sell your unused gift cards
Exclusive offers and discount opportunities for regular users
Convenience as the platform is easy to use and provides a hassle-free experience for users who buy or sell gift cards.
Unused gift cards can be sold for cash or swapped for your preferred merchant’s gift cards, giving value to otherwise wasted money.
Very user-friendly: It’s simple and effortless to buy and sell gift cards on this platform – a massive plus for users.
With all these advantages, CardCash makes a pretty compelling case as your go-to online gift card marketplace.
CardCash, a reputable gift card marketplace, might just be the perfect match for your needs!
Cons of CardCash
Before you decide to use CardCash, it’s important to weigh the drawbacks of the platform against its benefits.
Recognizing these concerns helps you make an informed decision and avoid potential hiccups along the way.
Here are the top cons to using CardCash:
Lower Payouts: When you decide to sell your gift cards on the platform, you might receive lower payouts than you’d expect. Be sure to carefully evaluate these potential losses.
Merchant isn’t on Platform: Not all merchants are available on the platform, which is unfortunate.
Short Buyer Protection Guarantee: Compared to other gift card marketplaces, CardCash’s 45-day buyer protection guarantee feels rather insufficient. For comparison, Raise offers a guarantee for a full year.
Disappearing Balances: Many users have reported issues with their card balances mysteriously disappearing, which can be quite unsettling. Learnwhy this unfortunately happens.
Is CardCash Legit?
Yes, CardCash is legit.
They’re a longstanding player in the gift card industry, thanks to robust security measures and a user-friendly platform.
Established over a decade ago, they have experience in offering a secure platform for buying, selling, or trading gift cards.
How do you go about sending eGift cards to CardCash?
Converting eGift cards works essentially the same way as converting physical gift cards. You still get the same benefits whether you are converting eGift cards or physical ones.
All you need to provide is the relevant information about the eGift card.
The payment process for selling eGift and physical gift cards is the same.
You can receive payment in cash or you can exchange for another gift card of your choosing.
Expert Tip: Make sure to accurately provide all necessary details regarding your eGift card to ensure a smooth transaction process.
CardCash Common Questions
CardCash is a website that allows you to buy, sell, and trade gift cards.
I tested out the site with various gift cards as part of my Cardcash review.
As this concept may be new to you, let’s answer some common questions about CardCash and give you our honest opinion on whether or not it’s a legit website.
1. Are CardCash transactions safe?
CardCash transactions are generally safe.
As a reputable marketplace for gift cards, CardCash enforces strict security measures like other platforms such as eBay or Amazon. However, it’s important to remember that you’re dealing with third parties that could potentially misuse gift card PINs.
To counteract this, CardCash offers a money-back guarantee for unsatisfied purchases. For example, if a gift card you bought is exposed as fraudulent, you can get your money back.
Despite this, always exercise caution, and use common sense while making transactions.
2. Are there any fees when buying or selling a gift card?
When you’re buying or selling gift cards on CardCash, there are no fees applied to your transactions.
The platform allows free signup and doesn’t charge for usage.
Purchasing a gift card? Absolutely zero fees. All you pay for is the discounted cost of the card itself.
Selling a gift card? No worries, still no fees. After providing your card details and balance, you’ll receive an offer. If you accept, the payment goes directly to you via check, PayPal, or direct deposit with no extra charges.
For instance, you have a $50 Best Buy gift card. After inputting the details, CardCash offers $45. If you accept, the $45 is sent to you without any deductions.
3. Is there any risk of identity theft when buying or selling gift cards?
Identity theft is when someone unlawfully obtains and uses your personal information, often for fraudulent purposes.
No, there should not be the risk of identity theft when buying or selling gift cards.
4. Is CardCash safe to use?
CardCash is definitely safe for use.
Operating since 2009, the platform is not only registered but also provides users with advanced security measures to secure personal data and transactions.
With a physical address and listed contact number, assistance is always at hand. Think of CardCash like a vault – your unused gift cards are safe to sell on it and your personal details are locked away securely.
5. Does CardCash buy stolen gift cards?
No, CardCash does not buy stolen gift cards. That is 100%, not their intent.
When you sell a gift card to CardCash, they require you to provide certain personal details to comply with federal anti-money laundering laws. CardCash uses these details to verify the authenticity of the sale and the seller.
However, remember that CardCash is an online marketplace where third-party vendors sell cards. Although most users are honest, there’s a risk of encountering scams unfortunately, and you should always exercise caution when using the platform.
Learn how to handle an Amazon package says delivered but not received.
6. Is it safe to buy gift cards with a credit card?
It is safe to buy gift cards with a credit card as long as you are using a reputable source.
When you use a credit card, you have the added protection of being able to dispute the charges if you do not receive the gift card or if it is not what you expected.
Make sure you are on CardCash’s legit website and you see the lock on the search bar indicating a secured website.
7. Are there any drawbacks to using CardCash?
One key drawback is the misleading discount rates.
Partner websites listed on CardCash may promise higher discounts than they actually deliver, leaving you scratching your head when your wallet feels lighter than expected.
As part of my Cardcash review, my Red Robin gift card valued at $25 would only receive $15.75 cash, which is 63% of its value.
Another significant concern is the 45-day buyer protection. Your best bet is to use your gift card within this limited time frame to avoid losses.
8. What are CardCash’s payout options?
For most, you want a direct, monetary form of compensation which is quite advantageous for those individuals who prefer having cold, hard cash as opposed to holding onto a gift card that they will never use.
Here are CardCash’s payout options:
Cash: CardCash allows users to sell their gift cards in exchange for cash. You can get a mailed check, ACH payment, or PayPal.
Prepaid Mastercard: Besides cash, CardCash also gives users the option to receive their payment via a Prepaid Mastercard. This is a convenient option, especially for those who like to keep their funds digital or for those who might not have convenient access to a bank.
Another gift card: One of the unique payout options provided by CardCash is the ability to exchange a gift card for another one. This option typically gives you a higher payout amount as well. But, you are limited to the merchants offered.
Just remember, payouts can fluctuate and might be less depending on the popularity of the gift card’s merchant.
9. Is it safe to sell gift cards on CardCash?
CardCash is a trusted platform where you can safely sell your unwanted gift cards.
However, keep in mind that you probably won’t get the full face value of the card, as the company keeps around 8-10% of its value.
Despite this, it’s a reliable way to make some money from unused gift cards. Card Cash is not a scam
10. What should I do if I have a complaint about CardCash?
If you’ve got complaints about CardCash, it’s crucial to voice them right away – that’s how issues get resolved.
Try reaching out to their customer support using the “Contact Us” form on their website.
If your complaint is due to balance discrepancies within 45 days of purchase, then email [email protected].
If that doesn’t work, send a detailed email to [email protected]. Be sure to mention specific problems and desired outcomes.
Most importantly, if there’s an issue with a gift card you bought, ensure you file a complaint within 45 days of purchase to receive a full refund.
My CardCash Review
Having firsthand experience with CardCash, I can share my insights about the process and how it measures up to my expectations.
Firstly, the process was indeed straightforward to navigate. The platform has been designed in a very user-friendly way that facilitates convenience and efficiency. It’s quite simple to get onboard, sell, or purchase a gift card.
However, there was a slight hitch – the value percentage offered. This slippage is more than I anticipated.
According to my experience and perception, the payouts for selling gift cards felt a bit lower than expected.
Here were the values I was given:
=> Olive Garden = 71% of value => Red Robin = 63% of value => Chili’s = 70% of value => DoorDash = not an option to sell
Gauging the 45-day buyer protection guarantee initially, it seemed impressive as it ensures a refund if the gift cards don’t function as advertised. However, there’s a catch – the gift cards should be used within this 45-day window, as the 45-day guarantee goes away.
In a nutshell, the experience with CardCash has been a positive experience. Personally, I would have rather been given the cash to use as a please versus a gift card.
However, all of the local gift card exchange kiosks don’t trade in gift cards. So, I felt my options were limited and chose to use CardCash.
FAQ
Yes, selling gift cards for cash is legit.
You need to use a verified site to avoid a scam.
A credit card is needed on CardCash for several reasons.
In order to use the service, you must have a credit card so that you can be properly verified. This is necessary in order to protect both the buyer and the seller.
This CardCash Review Should Help You
So, you’re considering CardCash for buying or selling gift cards, huh?
Well, on the positive side, CardCash offers an easy channel for getting rid of unwanted gift cards or buying new ones with a discount – sounds like a good deal, right?
Buying gift cards with a credit card from sites like CardCash can be safe, provided you take some precautions.
For me, it was a simple process and I chose another gift card.
Consequently, it’s important to remember that you’re purchasing second-hand gift cards, which could potentially have odd issues come up.
To ensure your value, make use of the 45-day guarantee. For example, if you’re planning a big purchase next month, buy the gift card now and make sure to use it within this timeframe. This minimizes the risk of being left with a worthless card after the guarantee period.
So, do your homework, understand how CardCash operates before diving in, or consider other options for more reliable service.
Just remember, while buying, you pay about 90-92% of the card value, and while selling, you get the same.
Know someone else that needs this, too? Then, please share!!
When you really get down to it, Halloween is about two things: costumes and candy. While some trick or treaters aim to get praise for their creative costumes, most Halloween goals revolve around candy.
Often times, kids will measure the success of their Halloween haul by how many pounds of candy they collected, but as my seventh grade social studies teacher often preached, “Quality is better than quantity.”
After all, no one wants 10lbs of peanuts, pretzels, and candy corn. So to make sure you get the tastiest of treats this Halloween, here are four tips to help you find the best candy houses.
1. They have great decorations
If a household is willing to transform their front yard into an eerily perfect haunted graveyard, there’s a good chance that they’re going to put in the extra effort with their candy.
I’m not saying that there’s always a direct relationship between the amount of decorations and the quality of the candy, but it’s true enough to warrant an investigation of any house with more than just a few jack o lanterns.
2. Lots of kids are going there
I understand that you don’t know what you’re going to get until you walk up to the door, but if a house is flooded with trick or treaters, I’d be willing to bet that they aren’t serving up fun size granola bars.
The key here is to hone in on the details; use all of your senses to try and get a read on the crowd. Are they excitedly skipping down from the front steps? Do you hear high pitched giggles? Smiling faces are the surest sign, but with masks, makeup, and the dark of night, you can’t always count on visual clues.
3. Talk to other trick or treaters
It might seem a little odd to engage in a conversation with a masked stranger, but talking to other trick or treaters is the ultimate way to ensure you are hitting all of the top candy houses.
Maybe try breaking the ice with a comment about their costume. After that, you could get the candy conversation going by talking about one of the best houses you’ve visited so far.
Stepping outside of your comfort zone is definitely worth the satisfaction you will feel when you have a pillow case filled to the brim with king sized candy bars. Who knows, you might even make some new friends.
4. Use an App
For the technologically advanced, you can check out the app Nextdoor, which allows neighbors to post about their surrounding houses.
There’s probably not going to be information on every single house, but it’s worth looking into if you’re really trying to cover all of your angles. You could even get some good karma by posting about the houses you’ve gone to.
Bottom Line
Using a little common sense and some critical thinking will go a long way when you’re out on the candy hunt. Just be safe out there, and after you’ve chowed down on your seemingly endless supply of quality treats—make sure to brush your teeth!
Photos via residencestyle and zliving.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
The Heston model is an options pricing model developed to address some of the shortcomings in the Black-Scholes model when pricing European options. In contrast to the Black-Scholes model, the Heston model uses stochastic, not constant, volatility as a key variable to determine option prices.
Developed by mathematician Steve Heston in 1993, this model is thought to be more real-world in nature since implied volatility percentages change during an option’s life. However, the Heston model is just one of many option valuation techniques to consider.
What Is the Heston Model?
The Heston model is used to gauge the value of options. The main difference between this and other models is how volatility is treated. The Heston model for option pricing assumes that volatility is stochastic, or random. That simply means that volatility is treated as a variable, in contrast to other models that assume constant or local volatility.
Option prices are made up of several variables — often referred to as the Greeks. It is important to understand price inputs in order to know how to trade options. Volatility is a major piece of the price of an option. The higher the implied volatility, the more valuable the option is. The Heston approach accounts for this by assuming there is a relationship between a stock’s price and its volatility.
💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options trading account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.
How Does the Heston Model Work?
By assuming that volatility is random, many traders believe the Heston option pricing model works better than the Black-Scholes model since it captures the true nature of volatility. The Heston approach is considered a superior model to the Black-Scholes, too. The downside is that it can be more complicated to calculate. Moreover, it can only be used on European options — those that can be exercised only at expiration.
Like other option pricing models, the Heston method attempts to determine the time value piece of an option’s total value. Intrinsic value is straightforward to figure out since it is just the difference between the stock price and strike price. Intrinsic value and time value comprise an option’s total worth.
Heston Model Pros and Cons
The Heston option pricing model has several advantages and disadvantages. By incorporating variable volatility characteristics, an options trader can have more confidence in the Heston model’s output reflecting observed market behavior versus other valuation techniques. The Heston model achieves increased accuracy by considering correlations between the price of a stock and its volatility. It also assumes that volatility exhibits mean reversion.
Additionally, Heston’s approach yields a closed-form solution that can simplify what is a complex mathematical equation.
The Heston model has its limitations. For one thing, the output is only as good as the variables you assume. This model is also thought to be ill-equipped to price options close to expiration due to instances when implied volatility might be extremely high.
Perhaps the biggest downside is its complexity versus Black Scholes and the binomial options pricing model.
Pros
Cons
Incorporates more realistic market conditions such as changing volatility levels
Only useful on European-style options
Prices options considering the price and maturity variables on volatility
Only as good as the inputs used
Yields a closed-form solution that can be used to compare an option’s value to its market price
Considered not an accurate gauge to price short-term options with high volatility
Heston vs Black-Scholes Model
Understanding the differences between the Heston model and the Black-Scholes model can help you determine which might work best when you trade options.
Heston Model
Black-Scholes Model
Assumes that volatility is random
Assumes that volatility is constant
Incorporates a relationship between a stock’s price and its volatility
Does not incorporate correlations between a stock’s price and volatility
Can be used in a variety of market conditions
Prices options under one set of volatility parameters
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
Heston Model Formula Explained
The Heston volatility model includes several mathematical inputs. Knowing these can help you find the right strategies for trading options. Understanding the model inside and out can arm you with the quantitative armor other traders might not possess.
Here is the full Heston model formula:
Where:
• St = specific asset price at time t
• r = the risk-free interest rate, often a short-term Treasury rate
• √Vt = volatility (standard deviation) of the asset
• σ = volatility of volatility
• θ = long-run price variance
• k = reversion rate to the long-term price variance
• dt = indefinitely small positive time increment
• W1t = Brownian motion of the asset price
• W2t = Brownian motion of the asset’s price variance
Note that the two Brownian motions are negatively correlated. For example, a drop in the asset price will see an increase in volatility. The two Brownians are related by the following equation:
Where ρ is the correlation.
In his original paper describing this model, Heston provided default parameters for the equations above which include:
• St = 100
• r = 0
• Vt = 0.01
• σ = 0.1
• θ = 0.01
• k = 2
• ρ = 0
• Option maturity = 0.5 year
Further calibration of the model requires advanced mathematical analysis.
Other Option Pricing Models
The Heston option pricing is just one of many approaches to consider. Let’s outline several of the most common methods you might use to price options.
Binomial Model
The binomial model uses an iterative approach using several periods to value American-style options. It follows a binomial pricing tree, which can be useful in illustrating how option prices change from one period to another. This method is considered intuitive and is used more often than Black-Sholes.
Risk-Neutral Probability
The risk-neutral approach to option pricing assumes that risk is not considered. This method can help a trader assess the true value of an option outside of market risk conditions.
Monte Carlo Simulation
Monte Carlo simulations are sometimes used to gauge the value of options. This method utilizes computer simulations to create thousands of potential outcomes. Option values can be calculated based on the probability-weighted computer output.
Monte Carlo simulation is used to generate realistic market conditions which can be useful for options traders as they attempt to assess how an option value will fluctuate over time. However, it can be time-consuming and costly to run these complex programmatic scenarios.
The Takeaway
The Heston model prices options using stochastic (random) volatility to more accurately model options pricing behavior. The more well-known Black-Scholes option pricing model assumes that implied volatility remains constant.
Some traders believe that the Heston model approach works better to incorporate practical, real-world conditions. Still, there are many techniques to price options for you to consider when you trade.
Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.
With SoFi, user-friendly options trading is finally here.
FAQ
What is the Heston model used for?
The Heston Model is used for pricing European options. It uses stochastic volatility to arrive at pricing outcomes, helping traders value options. If a trader determines that an option is over- or under-valued, they might sell or buy the option, then hold it through expiration or trade out of the position before expiration. It is important to remember that European options, unlike American options, cannot be exercised early.
Is the Heston model better than Black-Scholes?
It’s hard to conclude that the Heston stochastic volatility model is better than the more widely known Black-Scholes model. In contrast to Black-Scholes, the Heston model assumes that volatility can change. The Heston model can be more useful to traders since it assumes implied volatility, an important variable for options pricing, increases as options become more in-the-money or out-of-the-money. While the Heston model is considered to be more accurate, it comes with increased computational complexity or in layman’s terms…it’s slower.
What does stochastic local volatility mean?
Local volatility is a basic application of the Black-Scholes model. It accounts for the requirement to price-in skewness into option values. Stochastic volatility contrasts local volatility in that the former can produce a more real-world forward volatility profile. It’s thought that stochastic volatility can overprice options while local volatility and the Black-Scholes method might underprice options.
Photo credit: iStock/FG Trade
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN0322020
The Heston model is an options pricing model developed to address some of the shortcomings in the Black-Scholes model when pricing European options. In contrast to the Black-Scholes model, the Heston model uses stochastic, not constant, volatility as a key variable to determine option prices.
Developed by mathematician Steve Heston in 1993, this model is thought to be more real-world in nature since implied volatility percentages change during an option’s life. However, the Heston model is just one of many option valuation techniques to consider.
What Is the Heston Model?
The Heston model is used to gauge the value of options. The main difference between this and other models is how volatility is treated. The Heston model for option pricing assumes that volatility is stochastic, or random. That simply means that volatility is treated as a variable, in contrast to other models that assume constant or local volatility.
Option prices are made up of several variables — often referred to as the Greeks. It is important to understand price inputs in order to know how to trade options. Volatility is a major piece of the price of an option. The higher the implied volatility, the more valuable the option is. The Heston approach accounts for this by assuming there is a relationship between a stock’s price and its volatility.
💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options trading account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.
How Does the Heston Model Work?
By assuming that volatility is random, many traders believe the Heston option pricing model works better than the Black-Scholes model since it captures the true nature of volatility. The Heston approach is considered a superior model to the Black-Scholes, too. The downside is that it can be more complicated to calculate. Moreover, it can only be used on European options — those that can be exercised only at expiration.
Like other option pricing models, the Heston method attempts to determine the time value piece of an option’s total value. Intrinsic value is straightforward to figure out since it is just the difference between the stock price and strike price. Intrinsic value and time value comprise an option’s total worth.
Heston Model Pros and Cons
The Heston option pricing model has several advantages and disadvantages. By incorporating variable volatility characteristics, an options trader can have more confidence in the Heston model’s output reflecting observed market behavior versus other valuation techniques. The Heston model achieves increased accuracy by considering correlations between the price of a stock and its volatility. It also assumes that volatility exhibits mean reversion.
Additionally, Heston’s approach yields a closed-form solution that can simplify what is a complex mathematical equation.
The Heston model has its limitations. For one thing, the output is only as good as the variables you assume. This model is also thought to be ill-equipped to price options close to expiration due to instances when implied volatility might be extremely high.
Perhaps the biggest downside is its complexity versus Black Scholes and the binomial options pricing model.
Pros
Cons
Incorporates more realistic market conditions such as changing volatility levels
Only useful on European-style options
Prices options considering the price and maturity variables on volatility
Only as good as the inputs used
Yields a closed-form solution that can be used to compare an option’s value to its market price
Considered not an accurate gauge to price short-term options with high volatility
Heston vs Black-Scholes Model
Understanding the differences between the Heston model and the Black-Scholes model can help you determine which might work best when you trade options.
Heston Model
Black-Scholes Model
Assumes that volatility is random
Assumes that volatility is constant
Incorporates a relationship between a stock’s price and its volatility
Does not incorporate correlations between a stock’s price and volatility
Can be used in a variety of market conditions
Prices options under one set of volatility parameters
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
Heston Model Formula Explained
The Heston volatility model includes several mathematical inputs. Knowing these can help you find the right strategies for trading options. Understanding the model inside and out can arm you with the quantitative armor other traders might not possess.
Here is the full Heston model formula:
Where:
• St = specific asset price at time t
• r = the risk-free interest rate, often a short-term Treasury rate
• √Vt = volatility (standard deviation) of the asset
• σ = volatility of volatility
• θ = long-run price variance
• k = reversion rate to the long-term price variance
• dt = indefinitely small positive time increment
• W1t = Brownian motion of the asset price
• W2t = Brownian motion of the asset’s price variance
Note that the two Brownian motions are negatively correlated. For example, a drop in the asset price will see an increase in volatility. The two Brownians are related by the following equation:
Where ρ is the correlation.
In his original paper describing this model, Heston provided default parameters for the equations above which include:
• St = 100
• r = 0
• Vt = 0.01
• σ = 0.1
• θ = 0.01
• k = 2
• ρ = 0
• Option maturity = 0.5 year
Further calibration of the model requires advanced mathematical analysis.
Other Option Pricing Models
The Heston option pricing is just one of many approaches to consider. Let’s outline several of the most common methods you might use to price options.
Binomial Model
The binomial model uses an iterative approach using several periods to value American-style options. It follows a binomial pricing tree, which can be useful in illustrating how option prices change from one period to another. This method is considered intuitive and is used more often than Black-Sholes.
Risk-Neutral Probability
The risk-neutral approach to option pricing assumes that risk is not considered. This method can help a trader assess the true value of an option outside of market risk conditions.
Monte Carlo Simulation
Monte Carlo simulations are sometimes used to gauge the value of options. This method utilizes computer simulations to create thousands of potential outcomes. Option values can be calculated based on the probability-weighted computer output.
Monte Carlo simulation is used to generate realistic market conditions which can be useful for options traders as they attempt to assess how an option value will fluctuate over time. However, it can be time-consuming and costly to run these complex programmatic scenarios.
The Takeaway
The Heston model prices options using stochastic (random) volatility to more accurately model options pricing behavior. The more well-known Black-Scholes option pricing model assumes that implied volatility remains constant.
Some traders believe that the Heston model approach works better to incorporate practical, real-world conditions. Still, there are many techniques to price options for you to consider when you trade.
Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.
With SoFi, user-friendly options trading is finally here.
FAQ
What is the Heston model used for?
The Heston Model is used for pricing European options. It uses stochastic volatility to arrive at pricing outcomes, helping traders value options. If a trader determines that an option is over- or under-valued, they might sell or buy the option, then hold it through expiration or trade out of the position before expiration. It is important to remember that European options, unlike American options, cannot be exercised early.
Is the Heston model better than Black-Scholes?
It’s hard to conclude that the Heston stochastic volatility model is better than the more widely known Black-Scholes model. In contrast to Black-Scholes, the Heston model assumes that volatility can change. The Heston model can be more useful to traders since it assumes implied volatility, an important variable for options pricing, increases as options become more in-the-money or out-of-the-money. While the Heston model is considered to be more accurate, it comes with increased computational complexity or in layman’s terms…it’s slower.
What does stochastic local volatility mean?
Local volatility is a basic application of the Black-Scholes model. It accounts for the requirement to price-in skewness into option values. Stochastic volatility contrasts local volatility in that the former can produce a more real-world forward volatility profile. It’s thought that stochastic volatility can overprice options while local volatility and the Black-Scholes method might underprice options.
Photo credit: iStock/FG Trade
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN0322020
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
Written By:
Updated: August 15, 2023
5 Min Read
Advertising Disclosure
Advertising Disclosure
GoodFinancialCents® has an advertising relationship with the companies included on this page. All of our content is based on objective analysis, and the opinions are our own. For more information, please check out our full disclaimer and complete list of partners.
Quality Verified
GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
Why You Can Trust GoodFinancialCents®
GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
universal life insurance situation I’ve ever come across.
It’s often touted as a “great investment,” offering things like tax-free money just like a Roth IRA, guarantee of principal, on and on and on.
If you’ve been a reader of the blog, you’ll know I’m a firm believer that in the right situation, a financial product could work, but just like I see annuities being used inappropriately, the same applies to universal life insurance types.
A recent prospective client encounter illustrates that too perfectly.
Universal Life Insurance Used Wrong
Both husband and wife are currently in their early 40s, and they don’t have a lot in savings.
The husband had a good government job, but was forced to resign, and is currently working part time. They have little to nothing saved in retirement, and much of their past savings had been depleted helping out an ill family member.
Seven years prior, their insurance agent sold them a $1 million term policy (that I totally support), and a $100,000 universal life policy (that I totally do not support).
I asked the clients why they took out the universal life policy to begin with, and their response was that the husband wanted something that would take care of his wife if something happened to him.
The term policy works perfect for this. The universal life also does this, but is MUCH more expensive.
He was paying $101 a month for the universal life policy and $88 a month for the 20-year term policy. If making sure that his wife was taken care of was his goal in taking out both policies, then in my opinion, the advisor fell short. The client could have purchased a much larger term policy and used the difference to start funding their retirement. The agent was trying to sell this policy as an investment for later.
Here’s where it gets even worse.
Diving into the numbers: the client took out the policy in October of 2007, and has been paying $101 ever since. At the end of last month, May 2014, the client had put in a total of $7,949 into the policy.
The total cash value accumulated was $6,000, with a surrender value of $5,900.
How’s that for an investment?
I’m not saying that universal life insurance is a horrible investment, but more times than none, it’s oversold to somebody who doesn’t need it. The husband and wife were not contributing to any retirement plans or IRA’s when they took out the policy, which is something that should have been asked by the advisor.
Instead of putting money into an expensive universal life policy, they should have been funding a 401k or a Roth IRA.
If you’re considering buying a universal life insurance policy, here are the rules you need to follow:
Rules for universal life insurance:
1. You better have an insurance need.
I once encountered a situation where a 26-year-old female, a 26-year-old single female, was sold a $1 million universal life policy. The insurance agent pitched it to her as a guaranteed savings account that was offering somewhere in the 6% to 7% range. She was told that she could never lose her principal, and that she’d be making a great return on her money.
It turns out what she really had was a $1 million universal life insurance policy. She was paying a good chunk per month toward it, and when there happened to be a botch in how she was paying for her quarterly premium, it prompted her to investigate what exactly she had, because in the short term that she’d had it, she hadn’t seen this 6% interest that the agent had spoken of.
After contacting the agent’s home office, she learned the truth. She had been sold a $1 million universal life insurance policy. When she learned that, her immediate question was, why does a 26-year-old woman who’s not married, with no kids, who has $100,000 of student loan debt, need a $1 million life insurance policy?
Of course, the back office couldn’t answer that question and deferred that to her agent. There’s no question that she did not have an insurance need, and therefore had no need for a universal life policy.
2. You also better have term insurance.
It irks me to no end when an adviser or life insurance agent sells universal life insurance as an investment that also has protection. If they are leading in with that, and they haven’t even had the discussion of term life insurance, they are immediately added to my list of the financial advisors I’d like to punch in the face. Term life insurance is dirt cheap, and that is where you need to start before purchasing any type of universal life policy.
To put things in comparison, I purchased a $2.5 million term life insurance policy for $2,500 per year as annual premium. When I started doing some inquiring on a universal life policy for myself, here is what I found.
Keep in mind in my own personal situation, I am unable to put into a Roth IRA because of the income limit. I was looking at a universal life policy as a long-term savings tool as well. (note: the policy I was reviewing was an indexed universal life policy).
If I structured the universal life policy to where I would pay $10,000 per year of premium, and did so for 10 years, that would give me a death benefit of $285,743. The policy offers the ability to accumulate cash value, but the guaranteed rate is 3% before expenses.
By the time I was 60, I could pull a whopping $104,000.65 guaranteed. There are some ties to the market where the value could be much more. If I were to average 5.5%, that total would be $249,365, but as you can see, to have a $285,000 death benefit would take me putting in $10,000 a year for 10 years, and which far exceeds the premium outlay for a term life insurance policy.
3. Roth IRA and/or 401(k) is a must.
If the person pitching you universal life insurance policies uses the phrase “It’s an investment like a Roth IRA,” then why in the heck are they are not suggesting you open a Roth IRA first? A Roth IRA should give you more bang for your buck, and won’t have the high cost of insurance attached to it. The same goes for a 401(k).
Preferably, I would love to see somebody maxing out both the 401(k) and a Roth IRA before they even explore any type of universal life policy. If the person is pitching you universal life insurance and they haven’t even inquired about whether you are putting money into your retirement account or not, you know they are sketchy. Move on quick.
4. You’ve compared the cost of multiple carriers.
In the original case above, where the individual is paying $101 per month for a $100,000 universal life policy, I was able to compare rates and see if they could even pay less than what they’re paying, in case they wanted to keep it.
It turns out I found multiple carriers that were far less than the $101 per month they were paying, from the top life insurance companies in the United States. The best option I found was actually $40 a month cheaper than what they were paying, for a total savings of just under $500 per year.
If you are fully committed to taking on a universal life policy, make sure the person selling it to you has the ability to work with multiple carriers. If they are working for a big box company that can only offer one solution, then you better at least get a quote with somebody else.
Is Universal Life Insurance Really a Ripoff?
The short answer is no. Universal life insurance is not a ripoff, but it had better make sense for what you’re trying to accomplish. For example, I’ve seen these type of policies used for estate planning purposes to pass more onto the heirs of clients. In these cases, universal life insurance makes A LOT of sense.
For the couple that was sold a universal life policy above, I suggested they contact their agent and find out why exactly they were sold the policy in the first place.
About the Author
Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion – educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.
Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University – Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® – Accredited Asset Management Specialist – and CRPC® – Chartered Retirement Planning Counselor.
While a practicing financial advisor, Jeff was named to Investopedia’s distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC’s Digital Advisory Council.
Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.
Portrait of Charlie Ferrer in a client’s home by Tim Lenz. From left: Various work on paper and Thomas Barger’s Gingham Passion Chair, 2020. All images courtesy of Ferrer.
At what point after graduating college do we let go of collapsible dinner tables and high-end knock-offs? For interior designer Charlie Ferrer, the answer is ASAP. The Chelsea-based creative founded his own interior design studio and gallery in 2012, offering a plethora of furniture, lighting, and art by both notable and emerging designers. The joint practice has been the go-to agency for fellow creatives and private collectors who appreciate his eclectic eye. Here, Ferrer discusses his personal favorite artists, the importance of supporting smaller talent, and the secret to putting together a tasteful interior.
CULTURED: What do you think makes the New York art scene distinct?
Charlie Ferrer: The density of resources. New York has the highest concentration of galleries, dealers, institutions, working artists, curators, advisors, conservators, and, not least, collectors. This proximity of people and talent, money and ideas, breeds a highly productive atmosphere.
From left: Andrew Hughes, Gemini Table Lamp, 2018; Camilla Reyman, Guilty Pleasure #18, 2015; Wolfgang Tillmans, Peach alive, 2016; Joe Zorrilla, Cartographies(Sheet), 2013. All photography of Ferrer’s home by William Jess Laird.
CULTURED: You’ve been billed as a “millennial designer.” What do you think this generation is doing right and wrong in their homes?
Ferrer: There are plenty of young collectors participating in the art and design markets at advanced levels, and that’s great. I wish for more participation at the emerging level. There is a vast world of young people making art. Where are their collector counterparts? I would love to see the coalescence of a larger community of “emerging collectors,” a group that supports their artist contemporaries, choosing art and design purchases as frequently as other discretionary categories like fashion and travel. The spend can be modest—it’s less about money and more about curiosity, education, a shift in focus. I rarely walk into the home of a 30-year-old or even a 38-year-old to find a handful of thoughtfully collected pictures or objects. I find this reality disappointing.
This same wish extends to interiors and collectible design. Millennials tend to consume commodified retail products. Why choose formless sectionals, poorly knocked-off Scandinavian design and Pierre Jeanneret reproductions when there are so many opportunities for an individualized expression of taste? Historical design and specialty goods for the home are more accessible now than ever.
From left: Jacques Quinet, Dining Table, 1950s; Mark Steinmetz, Knoxville, TN (teenage boy looking out window), 1989; Daniel Turner, Untitled 5150 3.5.13, 2013; César, Autoportrait quadrillé, 1984/96; Jacques Adnet, Pair of Leather Dining Chairs, 1960.
CULTURED: How does a client’s art collection impact your vision for their interiors? How did you build your space around your own?
Ferrer: I am selling collected environments. When a client comes to me with an existing collection of art and/or design, we make space for it. I prefer that every room I touch contains art and objects, but I do not necessarily design rooms for art or the inverse—select art for specific rooms. I suppose large-scale works are one exception. If a work requires a massive wall, a special path of access into the space, etc, we plan for that early on in our process.
Philosophically, I believe in collecting for the sake of a collection and creating interiors that support and dialogue with that collection. I build spaces through an iterative process of layering in which every object is something of meaning on its own. As a project evolves, an assemblage of cool things grows. The vision for the project as a whole eventually takes form. The sum of its parts feels eclectic and organically collected because it is. The best projects are never really finished, they keep evolving, even if just in small ways.
When it comes time to install art, I do like to hang densely, often asymmetrically and sometimes unconventionally, so long as the client is on board.
David Morehouse worked at the Hammer during our years there. Through David, I enjoyed a lot of exposure to artists and collectors and dealers—artists like Mark Bradford, Mark Hagen, Elliott Hundley; collectors Eugenio López, Beth Rudin DeWoody, Bill Bell, Alan Hergott and Curt Shepard; dealers Shaun Regen, Hannah Hoffman, Nino Mier, David Kordansky. The art world in LA 10 plus years ago felt like a small club. That period in my life was vastly eye-opening. It clued me into a world I did not know. Though I had a gallery for a year where we showed furniture and art (featured in CULTURED‘s Spring 2013 issue), I don’t think I actually acquired any art for myself until I left for New York.
CULTURED: What is the first piece you ever bought?
Ferrer: An abstract painting by Shinpei Kageshima from Take Ninagawa at NADA, Miami Basel in 2011. That was an exciting moment for me—being at a busy fair, finding a work by a young artist that spoke to me, shown by a dealer who had come from so far away, offered at a price I could conceivably afford.
From left: Deborah Remington, Icar, 1983; Jed Ochmanek, Untitled, 2010; Émile-Jacques Ruhlmann, Desk, 1930s; Patrick Dupré, Sculpture Cinétique, 1977; Thomas Beale, Silence, 2004; Maynard Monroe, Never Underestimate the Power of Babel, 2012; Raphaël Décorateur, Smoked Acrylic Lounge Chair, 1960s.
CULTURED: Which work provokes the most conversation from visitors?
Ferrer: A mixed media piece composed of used socks, silicon, and pigment on canvas called A Rag of Sorts by Jesse James Thompson. It is appealingly tactile and fetishistic. The colors are beautiful and so is the bronze frame I had made for it. I bought the work out of a group show of MFA candidates put on by Edsel Williams at The Fireplace Project in East Hampton.
CULTURED: Which artist are you currently most excited about and why?
Ferrer: Kevin Beasley, in particular his figurative sculptures, for their rich materiality and the palpable emotion they embody for me. Pretty much anything is shown by Gordon Veneklasen at Michael Werner. The quality of their program is impeccable. On the design side, I am impressed by what Alex May is doing with SIZED out of Los Angeles. The shows are broad and ambitious. They inspire me.
César, Autoportrait quadrillé, 1984/96.
CULTURED: What was the most challenging piece in your personal collection to acquire?
Ferrer: For lovers, maybe, but for art I’m not one to play the hard-to-get game. I just don’t have the bandwidth to get involved at that level personally. I suppose for me the toughest acquisition was my César sculpture because it was a matter of finding the funds when I found the piece. Sometimes, I stretch my limits to get a work I know I want. There is a distinctive gut feeling, a reflex. I imagine others can relate… The timing was right enough for the César. Thankfully, the gallery was patient, and it worked out. I am very fond of that piece.
CULTURED: Is there one piece that got away, or that you still think about?
Ferrer: One of Christopher Wilmarth’s ethereal glasswork sculptures at Craig Starr Gallery. Craig put on a show in 2020 that I continue to daydream about.
Sign Up for the Cultured Newsletter
Sure, we can be close friends. Unfiltered access awaits.
Options traders buy calls when they believe prices will increase and purchase puts when they think prices will drop. But is there a way to profit if traders believe either that the price will remain stable, or the price will be unstable but the direction of movement is unclear?
Enter the butterfly spread strategy.
Butterfly spreads, depending on how they’re constructed, allow you to profit from either price stability or instability. In addition, they have the advantage of allowing traders to know their maximum gains and losses over the life of the trade.
Before engaging with a butterfly options trade, it’s best to learn how the myriad parts of a butterfly trading strategy works — and how to make that strategy work for you.
Butterfly Spread Defined
The butterfly spread — so named because of its “two wings on a butterfly” structure to the payoff graphs — is a go-to strategy for seasoned options investors looking for leverage while limiting downside risk.
Butterfly spreads are an advanced trading strategy, but if you’re a beginner there are other options strategies for you to explore.
Recommended: 10 Options Trading Strategies for Beginners
A butterfly options spread is an investment strategy that aims to profit from changes in volatility, take advantage of time decay, or both.
The object is to garner big trading returns on an asset whose price remains close to the strike price (when trading volatility is low) by the time the options contract expires. Butterfly options trades can be complicated in nature, but unlike many derivative trading strategies, butterfly trading strategies offer limited (i.e., known) gains and losses.
That “limit factor” derives from bull and bear spreads that in combination provide a price neutral strategy that keeps costs low, limits losses, and hopefully generates outsized returns.
Even so, butterfly options spreads do come with investment risk. Such trades should not be deployed by an investor unless the price of the underlying asset (such as a stock, bond, mutual fund, or exchange traded fund) remains fairly stable over the option contract’s entire time period.
💡 Quick Tip: If you’re an experienced investor and bullish about a stock, buying options online (rather than the stock itself) can allow you to take the same position, with less cash outlay. It is possible to lose money trading options, if the price moves against you.
How Does a Butterfly Spread Work?
Like any options trade, a butterfly spread trade is based upon the option’s underlying asset. The option contract itself spells out how the trade is structured.
Typically, when a trader looks at calls and puts in options they are concerned about the following key elements:
• Whether the trader is interested in call or put options.
• Will the trader be buying or selling/writing options.
• The strike price
• The options premium
• The expiration date (i.e., when the options contract ends).
With a butterfly spread, the contract owner typically forges a bullish and bearish price spread. The contract represents a neutral trading strategy with a quartet of options contracts that hold the same expiration date, but have three different strike prices (one option at a low strike price, two at-the-money options, and a fourth option at a higher strike price).
Recommended: What Are Stock Spreads?
The options at the higher and lower strike prices are equidistant from the at-the-money contract price — this represents the proper balance of the two wings attached to the butterfly’s body (i.e., the neutral options contract).
For example, if the asset is trading at $50, the higher and lower strike prices should be equally distant from the $50 strike price — at $40 and $60, for instance — each “wing” of the butterfly trading strategy would be $10 away from the current $50 asset price.
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
Butterfly Spread Example
Here’s an example of a long call butterfly spread, one of the most common forms of butterfly spread trading.
An investor decides to invest in XYZ stock where prices are stable and five-year pricing fluctuations are minimal.
XYZ is currently trading at $55 and the investor expects shares to remain stable, but doesn’t want to take on too much risk.
Here’s the butterfly spread options trade that takes full advantage of the situation but limits any downside losses.
The investor:
• Buys an out-of-the money XYZ call expiring in two months with a strike price of $45
• Sells two at-the-money XYZ calls with strike prices of $55 and the same expiration as above
• Buys an out-of-the money XYZ call with a strike price of $65 also with the same expiration
Recommended: Guided to the Moneyness of Options
Note the equal balance between the three trades – each strike price is $10 from the $55 strike price on the two sold calls.
In total, the investor has purchased a pair of XYZ calls and has sold a pair of XYZ calls for the following amounts:
• Purchase of one out-of-the-money XYZ call at $45 for $700.
• Purchase one out-of-the-money XYZ call at $65 for $100.
• Sell two at-the-money XYZ calls at $55, gaining $600 on the sale.
At the end of the transaction, the investor spends a net total of $200 ($700 plus $100 minus $600 equals $200).
If XYZ prices remain stable and close at $55 on the expiration date, the investor will achieve the maximum profit on the trade of $800.
Maximum Profit = Price of $45 call – Price of $55 calls + Price of $65 calls – Initial investment
Calls that are out of the money expire worthless, therefore:
Maximum Profit = ($10 – $0 + $0) * 100 shares per option – $200 = $800
If the price of XYZ moves significantly (for example, it rises above $65 or falls below $45, the butterfly spread yields the maximum loss of the $200 spent to initiate the trade.
Maximum Loss = Net Premium Paid = $200
Finally the butterfly spread has two break even points:
Lower Break Even point = Strike of Lower Strike Long Call + Net Premium Paid Higher Break Even point = Strike of Higher Strike Long Call – Net Premium Paid Lower Break Even point = $45 + $2 = $47 Higher Break Even point = $65 – $2 = $63
Should XYZ settle between $47 and $63 per share at expiration, the trade will be profitable. How profitable is summarized in the graph below.
Note: The calculations and graph above disregard transaction costs, but due to the complexity of the butterfly spread these can add up. The smart trader considers these costs when initiating and exiting trades.
Types of Butterfly Spreads
Investors looking to engage with butterfly spread trading have several types of spreads to consider.
Long Call Butterfly Spread
This type of butterfly spread has a trader purchase three positions; an out-of-the-money call option at a low strike price, the sale of two at-the-money call options, and another purchase of an out-of-the-money call option with a higher strike price as in the example above.
An investor may earn the maximum profit if the underlying asset’s price remains stable and is the same as the written calls on the expiration date.
The maximum loss is represented by the trade entry cost, with trading fees added into the final amount.
Short Call Butterfly Spread
A short call butterfly spread is the inverse of a long call butterfly spread and is initiated when an investor sells a single out-of-the money call option with a low strike price, purchases two at-the-money call options, and sells an out-of-the money call option that has a higher strike price.
The maximum profit is the same as the initial premium collected minus the cost of trading fees but can be achieved two ways. If the stock moves substantially higher or if the price moves substantially lower. In this case, the trader expects the stock to move significantly but doesn’t know in which direction. One market scenario might be before an earnings call where the market’s expectations of results are unclear.
The maximum loss on the trade is equal to the difference between the lowest strike price and the center strike prices less the credit received on trade initiation. This will occur if the price remains stable.
Iron Butterfly Spread
An iron butterfly spread is a four-position transaction constructed when an investor buys an out-of-the-money put option that has a lower strike price, sells a single at-of-the money put option, sells a single at-of-the money call option, and buys an out-of-the money call option that has a higher strike price.
Maximum profit is achieved when the underlying asset is equal to the middle option strike price, along with the premiums provided via the iron butterfly spread trading strategy. The maximum loss is represented by the strike differential of the middle strike price minus the lower strike price less any premiums earned.
Pros and Cons of Using a Butterfly Spread
All options trades have advantages and disadvantages and butterfly spreads are no exception.
Pros of Butterfly Spreads
While profit is always the primary hoped for benefit of engaging in a trade, butterfly spreads do offer more.
Flexibility. Butterfly spread options allow the trader to construct trades to take advantage of varying scenarios.
Risk is limited. With a butterfly options trade, the maximum risk is limited and cannot exceed the parameters laid out upon initiation of the trade. Many options strategies can expose traders to unlimited losses.
Few surprises. With a butterfly options trade, a trader goes in knowing the maximum profit and loss linked to the trade.
Cons of Butterfly Spreads
Like any securities trade (especially with options trading), risks are a reality with butterfly spread trading. These potential downsides should be considered before engaging in any butterfly spread trades.
Complexity. There are scenarios where butterfly spreads are built with three or four different positions. This complexity comes with added transaction costs which can eat into potential profits. Butterfly spread options trading is complicated and not recommended for new investors.
Limited Reward. Butterfly options partner limited risk with limited reward. Hitting a home run with an option that allows an unlimited payoff is not in the cards here.
Assignment Risk. Options can be assigned at any time prior to expiration if an option is in the money. With so many moving parts the risk of assignment is real, with the other disadvantage that the butterfly spread collapses if any leg is assigned. This is manageable, but is a real risk.
Butterfly Spread Pros
Butterfly Spread Cons
Butterfly spreads are very flexible ways to profit from volatility or the lack thereof
Complexity comes with higher transaction costs
Limited Risk
Limited Reward
Few surprises
Assignment Risk
Use Your Options Trading Knowledge Today!
Investors looking to leverage butterfly spread options should know the trading strategy is complex and not without risk.
That said, a butterfly spread options strategy can yield significant profits if the expected scenario develops — and if the investor commits to the narrow options trading strategy that butterfly options trading demands.
Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.
With SoFi, user-friendly options trading is finally here.
Photo credit: iStock/Kateryna Medetbayeva
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN1021448
Paul: [00:00:08] Hello, everyone, and welcome to the latest edition of NPA TV, one in which we are shining the spotlight on the Non-QM landscape. And it’s been quite the year for the mortgage industry at large. Of course, after a relative feast over the last couple of years, it’s been fanning for some … [Read more…]
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
Quality Verified
GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
Why You Can Trust GoodFinancialCents®
GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
When I became an accredited investor, I found myself among an elite group with the financial means and regulatory clearance to access investments that many couldn’t. This opened doors to exclusive realms like hedge funds, venture capital firms, specific investment funds, private equity funds, and more.
Even though I had this “exclusive access” it took me awhile to start investing in alternative asset classes.
The Securities and Exchange Commission states that as an accredited investor, I possess a level of sophistication that equips me to craft a riskier investment portfolio than a non-accredited investor. While this might not be universally true for everyone, in my case, I had demonstrated the financial resilience to bear more risk (see barbell investing), especially if my investments took an unforeseen downturn.
One of the intriguing aspects I discovered was that investment opportunities for accredited investors aren’t mandated to register with financial authorities. This means they often come with fewer disclosures and might not be as transparent as the registered securities available to the general public.
The underlying belief is that my status as a sophisticated investor implies a deeper understanding of financial risks, a need for less disclosure on unregistered securities, and a conviction that these exclusive investment opportunities are apt for my funds.
On a personal note, as a practicing CFP®, I hadn’t always worked with accredited investors. Early in my career, I didn’t quite grasp the allure. But as time went on, I began to see the broader spectrum of investment options available to accredited investors.
As I learned more the clearer it became why this realm was so sought after. The variety and potential of these exclusive opportunities were truly eye-opening, reshaping my perspective on the world of investing.
Introduction to Accredited Investors
An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access because they satisfy one or more requirements regarding income, net worth, asset size, governance status, or professional experience.
The concept of an accredited investor originated from the idea that individuals or entities with a higher financial acumen or more resources are better equipped to understand and bear the risks of certain investment opportunities.
Historically, the distinction between accredited and non-accredited investors was established to protect less experienced investors from potentially risky or less transparent investment opportunities.
Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC), have set criteria to determine who qualifies as an accredited investor, ensuring that they have the financial stability and sophistication to engage in more complex investment ventures.
Criteria for Becoming an Accredited Investor
To be classified as an accredited investor, one must meet specific criteria set by regulatory bodies:
Criteria
Description
Income Requirements
An individual must have had an annual income exceeding $200,000 (or $300,000 for joint income with a spouse) for the last two years, with the expectation of earning the same or a higher income in the current year.
Net Worth Requirements
An individual or a couple’s combined net worth must exceed $1 million, excluding the value of their primary residence.
Professional Credentials
Recent updates have expanded the definition to include individuals with certain professional certifications, designations, or other credentials recognized by the SEC. Examples include Series 7, Series 65, and Series 82 licenses.
Business Entities
Entities, such as trusts or organizations, with assets exceeding $5 million can qualify. Additionally, entities in which all equity owners are accredited investors may also be considered accredited.
Best Investment Opportunities for Accredited Investors
Here’s a rundown of some of the top investment for accredited investors…
1. Fundrise
Minimum Investment: $500
Best for: Newbie Investors
Fundrise has revolutionized the real estate investment landscape. By democratizing access to real estate portfolios, it allows individuals to invest without the complexities of property management or the need for vast capital. The platform’s innovative approach provides exposure to a traditionally lucrative, yet often inaccessible, sector of the market
Through Fundrise, investors can access a diversified range of properties, from commercial ventures to residential units. The platform’s expert team curates these portfolios, ensuring a balance of risk and reward. With its user-friendly interface and transparent reporting, Fundrise has become a top choice for many venturing into real estate investments.
How it Works: Investors start by choosing a suitable investment plan on Fundrise. Once invested, the platform pools the funds with other investors and allocates them across various real estate projects. As these properties generate rental income or appreciate in value, investors receive returns in the form of dividends or appreciation.
Pros:
Diversified real estate portfolios.
User-friendly platform with transparent reporting.
Cons:
Limited liquidity compared to public markets.
Returns are dependent on real estate market performance.
2. Equitybee
Minimum Investment: $10,000
Best for: Experienced Investors
Equitybee offers a unique platform that bridges the gap between private companies on the cusp of going public and potential investors. This innovative approach provides a golden opportunity for investors to tap into the potential of startups and other private firms before they make their public debut.
The platform’s primary focus is on employee stock options. By allowing investors to invest in these options, they can potentially benefit from their appreciation as the company grows. With a vast array of companies, from emerging startups to established giants, Equitybee presents a diverse range of investment opportunities.
How it Works: Investors browse available stock options from various companies on Equitybee. Once they choose an option, they invest their funds, which are then used to purchase the stock options from the employees. If the company goes public or gets acquired, the investor stands to gain from the increased value of these stocks.
Pros:
Access to pre-IPO companies.
Diverse range of startups and established firms.
Cons:
Platform fee of 5%.
Potential risks associated with private market investments.
3. Percent
Minimum Investment: $500
Best for: Novice Investors
Percent stands as a beacon in the vast sea of the private credit market, illuminating a sector often overshadowed by traditional investments. This burgeoning market, valued at over $7 trillion, consists of companies borrowing from non-bank lenders. Percent offers a unique vantage point into this market, allowing investors to diversify their portfolios beyond typical stocks and bonds.
The allure of Percent lies in its ability to offer shorter terms and higher yields, combined with investments that are largely uncorrelated with public markets. This makes it an attractive proposition for those looking to step away from the volatility of traditional markets.
How it Works: Upon joining Percent, investors are presented with a plethora of private credit opportunities. After selecting an investment, funds are pooled with other investors and lent out to companies seeking credit. As these companies repay their loans, investors earn interest, providing a steady income stream.
Pros:
Access to the burgeoning private credit market.
Potential for higher yields.
Cons:
Requires understanding of private credit dynamics.
Less liquidity compared to public markets.
4. Masterworks
Minimum Investment: $10,000
Best for: Novice Investors
Masterworks paints a vivid picture of art investment, blending the worlds of finance and fine art. Traditionally, investing in art was a luxury reserved for the elite. However, Masterworks has democratized this, allowing individuals to buy shares in artworks from world-renowned artists.
The platform’s strength lies in its expertise. From authentication to storage, every facet of art investment is handled meticulously. This ensures that investors can appreciate both the beauty of their investments and the potential financial returns.
How it Works: After registering on Masterworks, investors can browse a curated selection of artworks. They can then purchase shares, representing a fraction of the artwork’s value. Masterworks takes care of storage, insurance, and eventual sale. When the artwork is sold, investors share the profits based on their ownership.
Pros:
Opportunity to diversify with fine art.
Managed by art experts.
Cons:
Art market can be unpredictable.
Long-term investment horizon.
5. Yieldstreet
Minimum Investment: $15,000
Best for: Advanced Investors
Yieldstreet stands at the intersection of innovation and alternative investments. It offers a smorgasbord of unique investment opportunities, ranging from art to marine finance. For those looking to venture beyond the beaten path of traditional stocks and bonds, Yieldstreet presents a tantalizing array of options.
The platform’s allure lies in its curated selection of alternative investments, each vetted by experts. This ensures that while investors are treading unconventional grounds, they’re not stepping into the unknown blindly.
How it Works: Investors begin by browsing through the diverse investment opportunities on Yieldstreet. After selecting their preferred asset class, their funds are pooled with other investors and allocated to the chosen venture. Returns are generated based on the performance of these assets, be it through interest, dividends, or asset appreciation.
Pros:
Wide range of alternative investments.
Potential for high returns.
Cons:
Some niches may be too specialized.
Requires a deep understanding of chosen investments.
6. AcreTrader
Minimum Investment: $10,000
Best for: Newbie Investors
AcreTrader, as its name suggests, brings the vast expanses of farmland to the investment table. It offers a unique opportunity to invest in agricultural land, combining the stability of real estate with the evergreen nature of agriculture. With the global population on the rise, the value of fertile land is only set to increase.
The platform meticulously vets each piece of land, ensuring only the most promising plots are available for investment. This rigorous process ensures that investors are planting their funds in fertile ground, poised for growth.
How it Works: Investors peruse available farmland listings on AcreTrader. After selecting a plot, they can invest, effectively owning a portion of that land. AcreTrader manages all aspects, from liaising with farmers to ensuring optimal land use. Investors earn from the appreciation of land value and potential rental income.
Pros:
Stable, tangible asset.
Potential for steady returns.
Cons:
Returns may be slower compared to other platforms.
Limited to U.S. farmland.
7. EquityMultiple
Minimum Investment: $5,000
Best for: Experienced Investors
Summary: EquityMultiple is a testament to the power of collective investment in the real estate sector. By leveraging the principles of crowdfunding, it offers a platform where multiple investors can pool their resources to finance high-quality real estate projects. This collaborative approach allows for diversification and access to projects that might be out of reach for individual investors.
The platform’s strength lies in its curated selection of real estate opportunities, ranging from commercial spaces to residential properties. With a team of seasoned real estate professionals at the helm, EquityMultiple ensures that each project is vetted for maximum potential and minimal risk.
How it Works: Upon joining, investors can explore a variety of real estate projects. After committing to a project, their funds are pooled with other investors to finance the venture. Returns are generated through rental incomes, property appreciation, or the successful completion of development projects.
Pros:
Diverse real estate opportunities.
Managed by real estate professionals.
Cons:
Market risks associated with real estate.
Longer investment horizons.
8. CrowdStreet
Minimum Investment: $25,000
Best for: Advanced Investors
CrowdStreet stands as a pillar in the commercial real estate investment domain. With its vast experience and industry connections, it offers a platform where investors can tap into prime real estate projects across the nation. From bustling urban centers to tranquil suburban locales, CrowdStreet provides a diverse range of investment opportunities.
The platform’s expertise ensures that each project is meticulously vetted, offering a blend of potential returns and stability. For investors looking to delve into commercial real estate without the hassles of property management, CrowdStreet is an ideal choice.
How it Works: After registration, investors can browse a myriad of commercial real estate offerings. Upon investing in a project, CrowdStreet manages the investment, providing regular updates and ensuring optimal project execution. Investors earn returns based on the project’s performance, be it through rentals, sales, or project completions.
Pros:
Access to prime commercial properties.
Established platform with a proven track record.
Cons:
High minimum investment.
Market dependency for returns.
9. Mainvest
Minimum Investment: $100
Best for: Newbie Investors
Mainvest offers a refreshing twist in the investment landscape, focusing on the heart and soul of the American economy: local businesses. From quaint cafes to innovative startups, Mainvest provides a platform where investors can support and benefit from the growth of small businesses in their communities.
The platform’s community-centric approach ensures that investments are not just about returns but also about fostering local economies. For those looking to make a difference while earning, Mainvest presents a unique opportunity.
How it Works: Investors can explore various local businesses seeking capital on Mainvest. By investing, they essentially buy a revenue-sharing note, earning a percentage of the business’s gross revenue until a predetermined return is achieved.
Pros:
Support and invest in local businesses.
Low minimum investment.
Cons:
Risks associated with small business investments.
Returns might be slower compared to other platforms.
10. Vinovest
Minimum Investment: $1,000
Best for: Novice Investors
Vinovest uncorks the world of wine investment, offering a blend of luxury, history, and financial growth. Fine wines have been a symbol of opulence for centuries, and Vinovest provides a platform where this luxury becomes an accessible investment.
With a team of wine experts guiding the way, the platform ensures that each wine is not just a drink but an investment poised for appreciation. From sourcing to storage, Vinovest handles every facet, ensuring the wine’s value grows over time.
How it Works: After signing up, investors set their preferences and investment amount. Vinovest then curates a wine portfolio based on these preferences, handling sourcing, authentication, and storage. As the wine appreciates, so does the investor’s portfolio.
Pros:
Unique investment opportunity in fine wines.
Managed by wine connoisseurs.
Cons:
Long-term holding for optimal returns.
Market influenced by external factors like climate.
11. Arrived Homes
Minimum Investment: $100
Best for: Novice Investors
Arrived Homes offers a fresh perspective on real estate investment, focusing on the charm of single-family homes. While skyscrapers and commercial complexes often dominate real estate discussions, single-family homes offer stability, consistent returns, and a touch of nostalgia.
The platform’s strength lies in its focus. By concentrating on single-family homes, it offers investors a chance to tap into a stable real estate segment, benefiting from both rental income and property appreciation.
How it Works: Investors browse available properties on Arrived Homes. After selecting a property, they can invest in shares, representing a portion of the home’s value. As the property is rented out, investors earn a share of the rental income. Additionally, any appreciation in property value benefits the investors.
Pros:
Low minimum investment.
Quarterly dividends.
Cons:
New platform with a shorter track record.
Limited to single-family homes.
12. RealtyMogul
Minimum Investment: $5,000
Best for: Novice to Experienced Investors
RealtyMogul stands tall in the commercial real estate investment landscape. It offers a platform where diversification meets opportunity, presenting a range of commercial properties for investment. From bustling office spaces to serene residential complexes, RealtyMogul provides a plethora of options for investors to expand their portfolios.
The platform’s prowess lies in its dual approach. Investors can either dive into non-traded REITs or make direct investments in specific properties. This flexibility ensures that both novice and experienced investors find opportunities that align with their investment goals.
How it Works: Upon joining RealtyMogul, investors can choose between REITs or direct property investments. Their funds are then channeled into these real estate ventures. Returns are generated through rental incomes, property sales, or successful project completions.
Pros:
Wide range of commercial properties.
Both REITs and direct investments available.
Cons:
Market risks inherent to real estate.
Higher minimums for direct investments.
The Future of Accredited Investing
The world of accredited investing is dynamic and ever-evolving. Emerging trends suggest a shift towards democratizing investment opportunities, with regulatory bodies considering more inclusive criteria for accredited investor status. This shift aims to balance the need for investor protection with the recognition that financial acumen can come from experience and education, not just wealth.
Furthermore, technological advancements are playing a pivotal role. The rise of blockchain and tokenized assets, for instance, is creating new avenues for investment and might reshape the landscape of opportunities available to accredited investors.
xAs the line between traditional and alternative investments blurs, the future promises a more integrated, inclusive, and innovative environment for accredited investors.
The Bottom Line – Top Investments for Accredited Investors
[embedded content]
Understanding the role and opportunities of accredited investors is crucial in the modern financial landscape. While the distinction offers privileged access to unique investment opportunities, it also comes with increased risks and responsibilities.
As the world of investing continues to evolve, potential accredited investors are encouraged to stay informed, conduct thorough research, and seek professional advice. The realm of accredited investing, with its blend of challenges and opportunities, promises exciting prospects for those ready to navigate its complexities.
FAQs – Investment Options for Accredited Investors
Why is there a distinction between accredited and non-accredited investors?
The distinction is primarily for investor protection. Accredited investors are deemed financially savvy or stable enough to handle the risks associated with unregistered securities, which might be riskier and less transparent.
What investment opportunities open up for accredited investors?
Accredited investors gain access to a broader range of investment opportunities, including hedge funds, private equity, venture capital, certain private placements, and more.
Are investments for accredited investors riskier?
While not inherently riskier, these investments often come with less regulatory oversight and transparency, which can increase potential risks. It’s essential to conduct thorough due diligence before investing.
Do accredited investors have any advantages in the public stock market?
While the primary benefits of being an accredited investor pertain to private investment opportunities, the financial acumen and resources associated with accredited investors can also be advantageous in public markets, especially when considering more complex investment strategies.
About the Author
Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion – educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.
Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University – Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® – Accredited Asset Management Specialist – and CRPC® – Chartered Retirement Planning Counselor.
While a practicing financial advisor, Jeff was named to Investopedia’s distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC’s Digital Advisory Council.
Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.