More and more traders prefer dealing with options rather than buying stocks and other underlying assets. Indeed, trading these derivatives brings a plethora of advantages with leveraged profit potential and reduced risk, to name just a couple. If you are still unsure whether this concept may become your perfect fit, read on and find out why trading options is better than spending your time on stocks.
Options Are Less Expensive Than Stocks
Nowadays, it is hard to find a trader who is not doing their best to save money. Therefore cost-efficiency is a high priority. Every trading expert will tell you that options come with a much lower price than the securities they are based on. While an option contract puts you in control of 100 equity shares, the cost of purchasing such a contract is a fraction of what you would pay for a stock equivalent.
The point is, in the case of buying an option contract, you pay a premium to participate in the trade. Of course, a lot depends on the current trends and your position in the market, as well as the shares you are going to buy, but all chances are you will get control of 100 shares for as little as 2 percent of what you would pay for the same number of shares of the stock. One doesn’t need to be a math genius to figure out the full benefits of this move.
Options Maximize Your Profits Through Leverage
Even newbies in trading have heard of leverage and the numerous advantages this feature offers to a smart user. As can be seen on this page dedicated to options trading systems, thanks to their high flexibility, options provide fantastic leverage allowing traders to collect profits in the way that suits their current strategy. Needless to say, since options are cheaper than their stock counterparts from the very outset, they leave room for truly impressive rewards compared to the initial investment. If when trading stocks, people are content with anything higher than 10%, trading options is known for delivering a staggering 800% – not bad, isn’t it?
Limited And Tightly Controlled Risk
No doubt, the amount of leverage is a big fat plus but options trading has more tricks up its sleeve. An even bigger and fatter bonus comes in the form of tightly controlled risk – the bottom line is, you can’t lose more than the price you have paid for the options contract. See the difference? With stock trading, you are at significantly higher risk of losing much more of your money than you want to due to long-term plays, higher margins, and slippage. There you have the obvious benefit: while for your maximum profit theoretically only the sky’s the limit, the maximum amount of money you can lose is limited to what you paid for opening the position.
No Need For Complex Analyses
Here comes another great thing that accompanies options trading – you can say goodbye to all those fundamentals, complicated metrics, and complex analyses. In contrast to stock trading, when you plan long-term investments with options, your goals are pretty humble – all you want is to see the shares nicely rising above the breakeven before the time your option expires, letting you reap your profit and leave the trade.
In line with the said above, you do not have to be involved in the complicated and time-consuming process of analyzing fundamentals before making a decision. Frankly, all these metrics do not carry too much weight for someone in options trading at the end of the day. However, they do matter for buy-and-hold stock investors, a lot.
Of course, when you master your skills and learn all the ins and outs of options trading, you will have a more comprehensive picture of the subject and will certainly opt for trying your hand at traditional metrics. Actually, you have plenty of things to be aware of, including the inflation of premiums caused by a range of developments in the financial markets. But the good news is, you do not have to do it right now – you can start whenever you feel ready for taking your performances to the next level.
To sum up, there are several good reasons for considering options trading a far superior concept than stocks trading. By sticking to options, you get a cheaper, more cost-efficient, less time-consuming way to reach your goals and make profits many stock traders can only dream of. Limited risk is another reason why one should give a try to option trading.