The Top 10 Benefits of Trading Options
The Stock Market provides a multitude of opportunities for every type of trader at every level of trading. In each market, within each niché, comes a line of risks and a line of benefits. Stock options, which trade off of an underlying stock or security, prove to be multi-faceted and lucrative from a buyer and seller’s standpoint.
A universal benefit of trading options is, you can trade them in a retirement account which has proven to be a lucrative and appealing way to grow and hedge your portfolio over time. Options can allow for better diversification by a lower capital outlay versus buying stocks. Since options are cheaper than purchasing the stock outright, they allow more markets to be traded at given time, thus creating more trading and investing opportunities. Not to mention, that the option markets have proven to be highly efficient and liquid.
Popular stocks that you may want to get involved in can sometimes be an expensive proposition. Options that can be purchased at a fraction of the cost in buying the stock outright, can prove to be more beneficial when the movements of the stock reflect the direction of the option. For example, a stock moving from $50 to $100 will show a 100% gain owning shares, whereas a call option would move from about $2 per contract to $10 a contract, resulting in a 500% gain. This is a prime example of another great benefit: the fact that you can capitalize on a stock’s price movement (up or down) at a much higher rate (Gamma risk) by owning the option as opposed to owning the stock outright.
Not only are options built on stocks, but the two can also be mutually beneficial when used together correctly. The key here is the simple fact that you can sell options to generate income on stocks that you already own. Plain and simple is the fact that options offer a more logical and conservative trading approach compared to low dollar stocks, penny stocks, and risky IPO’s. And although conservative strategies are proven successful, there are a range of strategies from conservative to much more aggressive to fit your needs and risk tolerance. So traders at any level can adopt a relevant strategy that is going to benefit them in their short-term goals, long-term goals, preferences, and plans of attack when planning for retirement and growing your investments.
Option trading scares a lot of traders off – young, old, experienced, beginners. The investment seems daunting and complex – too volatile to handle without outside guidance or loads of research. But contrary to popular belief, options succeed where others sectors of the Market tend to fail. Take for instance the fact that you do not have to exercise an option to profit from it. Or the fact that that volatility (Vega risk) itself can be profitable. These external forces work their way into the trading process and are ready and able to work in your benefit with the proper allocation and strategy.
You could never accuse options trading as being one dimensional. They are a multi-faceted, highly lucrative asset vehicle that cab be used in every investors portfolio. You can trade options from anywhere in the world with nothing more than an internet connection. Not to mention, that options allow for both sides of the trend to be traded – which in turn increase the total number of trends to be utilized and the coinciding potential returns. You have more leverage, you have the ability to hedge your account to safeguard yourself, the list seems to go on and on. Learn the mechanics, apply the strategies, and maximize your dollar by diversifying your portfolio with stock options.
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