No announcement yet.

5 Reasons Why Options Trading Is Better Than Stock Trading


Unconfigured Ad Widget

  • Filter
  • Time
  • Show
Clear All
new posts

  • 5 Reasons Why Options Trading Is Better Than Stock Trading

    Options trading has been the centre of much debate of recent years. Is it dangerous? Can we go bankrupt? Indeed, options as a form of derivative instrument is far more complex than the stocks that they are written based on and, like a wild stallion, can hurt you if you do not understand how it works and how to use it properly.

    This brings us to the topic of this article.

    In this article, I shall present 5 reasons why options trading is actually better than stock trading in order to dispel the age old myths of how dangerous options trading is. Let's remember this: Options trading is dangerous only when you do not understand it.

    1) Variable Leverage

    The leverage that options give you is perhaps the main reason why people gravitate to options trading in the first place. Leverage is the ability to do more with the same amount of money. Trading options allows you to make a lot more profit on the same move on the underlying stock. When you buy the stock itself without margin, you are merely making 1% profit on a 1% move in your favor. However, in options trading, you could be making 10% profit on that same 1% move the stock made or even up to 100% on that same 1% move!

    Yes, the beauty of leverage in options, unlike in futures trading, is that it is VARIABLE!

    You could take on more leverage for more risk or lesser leverage for lesser risk by choosing options of different strike prices and/or expiration month. In general, the more out of the money options, the higher the leverage and the more in the money options, the lower the leverage.

    Leverage cuts both ways. This is why the beauty of leverage in options trading is that it allows you to do the same trades with much lesser money, as such, you could simply use only money you can afford to and intend to lose in any failed trade for each options trade so leverage actually help you control your losses instead!

    2) Low Capital Requirement

    Apple Inc., AAPL, is trading at $295.36 today which means it takes $29,536 to buy 100 shares today. However, AAPL's at the money call options costs only something like $715 to control the profits on that same 100 shares of Apple!

    3) Bet Downwards Without Margin

    In order to profit from a downwards move on a stock in stock trading, you could only short the stock which incurs margin. However, in options trading, all you need to do in order to bet on a stock going downwards is to BUY its put options with no margin needed at all. That's right, buying put options for profit to downside works exactly the same as buying call options for profit to upside. There is no need to own the stock beforehand and there is no need for margin!

    4) Multi-Directional Profits

    In stock trading, you only profit when the stock goes in the direction you want it to. Upwards when you buy the stock or downwards when you short the stock. There is no way to profit in both scenarios simultaneously and there is no way to profit if the price of the stock does not move. However, in options trading, such multi-directional profits are possible! There are options strategies that allows you to profit no matter if the stock goes upwards or downwards quickly and there are options strategies that profits even if the price of the stock remains unchanged! Such is the real magic of options strategies which greatly increases your chances of winning in options trading versus stock trading!

    5) Play Banker

    Sick and tired of always being at the player's side of the table? In options trading, you could switch instead to the banker's side of the table and do what market makers do by selling options to people who are wants to take the side of the player! When the players lose, as they often do, you get to keep the bet as profit just like a real banker! Only options trading has the "bet" which you get to keep and it is known as "extrinsic value".

    Article Source:
    Platinum Swing Trade Stock Signal Alerts(FREE 14-Day Trial)

    The 10-Buck Broker (Long-Term Stock Signals)

    Best Stock Picking Services

    Sign up for the forum to reply to this post!!!

    Best FOREX Signals Software

    Stock Market Investing For Beginners

    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

    College is here to read more about the college scam!

    Good KARMA and positive energy abound.

    Terms Of Service

    Disclaimer: This website provides information about the stock market and other investments. This website does not provide investment advice and should not be used as a replacement for investment advice from a qualified professional. This website is for informational purposes only. The Author of this website is not a registered investment advisor and does not offer investment advice. You, the reader, bear responsibility for your own investment decisions and should seek the advice of a qualified securities professional before making any investment.

    Promoted content: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this website and may receive commissions from purchases you make on subsequent websites. Always exercise due diligence before purchasing any product or service. This website contains advertisements.
    Best stocks to buy now Stock Market
    Best stocks to buy now
    Dow Jones TodayDJIA