Are you considering getting into options trading? Many investors use options as their primary form of investment to make a profit, and it comes with many benefits.
Options trading is worth it for many reasons. You can use options as a hedging device, allowing you to work with flexible strategies. You also don’t have to pay as much as stocks to obtain options, but you can make similar profits, which means an exceedingly high return on investment.
There’s a lot to know about options trading. If you’re interested in learning more about what benefits this form of investment has to offer, be sure to continue reading. We included everything you want to know in this post!
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Why Options Are Worth It?
In the past, most investors tended to avoid options because they believed they were too hard to trade. The stories about people losing money on options didn’t help either. However, those experiences came from investors who didn’t know how to use options the right way.
As a result, options were mislabeled as too “risky,” which isn’t the case. Trading options come with several different benefits. Once you know how to use them, these advantages can be very profitable.
8 Reasons Why You Must Consider Trading Options
For those interested in options trading, you should give it a try. Having some personal experience with options will help you determine whether or not it is for you. But that doesn’t mean you need to invest all your capital—just enough to test the waters.
Here are all the reasons to try trading options for yourself:
Fewer Upfront Costs
Options require a lower amount of money upfront than trading stocks. The option’s buying price, combined with the trading commission and premium amount, is going to be much less than what you’d have to pay to buy the actual shares.
If you succeed in the trade, you benefit with the same percentage as a stock investor—who paid much more.
Why is that? Well, options are a leveraged investment. That means investors can gain options similar to stocks but at a lower cost. If an investor wanted to buy 200 shares for $80, they would pay $16,000. However, if you purchase two calls representing 200 shares at $20 per share, you spend only $4,000.
That means you save $12,000! If you’re getting into investing, lower costs are going to benefit you greatly.
There Are Fewer Downsides
There are only a few types of mistakes you can make when it comes to options trading. When you purchase a call or put, you don’t have to follow through on the trade. So, if you guess incorrectly about the direction the stock is taking, your losses are only limited to what you paid for the option.
Options Are Flexible
Options are more flexible for traders. You can use several different strategies, allowing you to find the ones that work the best for you. You can even make back funds spent on specific options. As long as you act before the expiration date, you’ll have plenty of chances to make a profit.
You Fix Stock Prices
Investors have the option to freeze stock prices at their strike price for a certain amount of time. This way, you’re guaranteed the chance to buy or sell the stock at that price before the option’s expiration date arrives. In other words, you can gain profits by forecasting market trends and making small commitments to your forecasts.
There’s Less Risk
If you know how to trade options the right way, there’s a lot less risk. Options can be used for hedging and come with more possible strategies. They also don’t require as much financial commitment as equities do.
Buying options is more reliable when it comes to hedging than stocks. When you buy stocks, you also receive a stop order. The stop order prevents losses below a set price but causes several other problems. If your stock drops below that price while you sleep, the stop order will sell it immediately. If the market reverses after your stop order is executed, you’ll incur heavy losses.
However, a put option protects you from that loss. Options are much more dependable and come with better strategies to negate risks.
Higher Returns
Since you’re spending less money but making the same profit as stocks, you’ll naturally have a higher return. While this means you need to avoid loss, it also means you can make an uncapped amount in profits. Overall, you have the potential to make more money than when you trade stocks.
More Strategies
You can learn and use many more strategies with options than stocks. These strategies allow you to achieve your investment goals in several different ways. For instance, you can short a stock or play the downside when you use puts. Stock traders don’t have those options.
So, enjoy a hands-on approach to finances. You’ll likely enjoy all of the different strategies that you have available! With options, you can trade on stock movements, volatility changes, and time.
Learning about as many options trading strategies as you can benefit you in many ways. Overall, staying informed will make it much easier to succeed and reach your financial goals. There are several types of strategies; this video can help explain all of them quickly:
You Have Time
Unlike day trading, you have time to see how the situation plays out with options. You don’t have to try to turn a profit in advance (as long as you do it before the option expires). Knowing whether you should sell an option right away or hold it for a long time depends on the company that owns the shares.
As you watch how the market conditions unfold, you’ll recognize patterns that let you know when you should sell your options. You don’t have the time to do that with day trading since you need to sell your options before the end of the trading day.
Mastering Options Trading
Options trading comes with many benefits, and that’s why it’s worth a try. However, you get most of the advantages when you take the time to master the art of trading options. You should do your research and rely on your previous experiences to make options trades—if you have any.
Beginners without any financial or investing experience can be at high risk when trying options trading for the first time. That’s why you should obtain information from reliable sources on the topic before you place your first trade; otherwise, you’re almost sure to lose all your money.
That way, you know you’re making an informed decision and can feel confident in your abilities. If you want an excellent book to help build your trading foundation, check out Options Trading: A Complete Crash Course by Mark Robert Rich and Matthew Bear.
As long as you put in the time, mastering options trading is possible.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
There are several benefits you can get from options trading. These include lower risk, higher returns, and more time to make decisions.
However, don’t start immediately. Spend some time reading about it. Check out some books and articles online. The more prepared you are before you make your first trade, the smoother it’ll go for you.
Options trading can provide you with higher rewards. As long as you’re careful to navigate the risk, you can earn a ton of money back in profit by learning to use the benefits listed above.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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