Business & Finance Stocks-Mutual-Funds

Advantages of Trading Options Over Traditional Stocks

Trading options is not as confusing as many people think.
 As with anything, trading options will require some learning and practice.
 Trading options is better then trading stocks for many reasons.
 It is a fact that options are considerably less expensive than the securities (which Options are based on) to trade.
  An Option contract gives you control of a block of 100 shares of equity in ABC company.
 This option contract in ABC Company will cost you less then buying 100 shares of ABC Company in the stock market.
I will give you only one reason(not the only reason), and in my opinion a very important reason, why trading options are better then trading stocks.
Trading Options gives you leverage! With trading options you have less capital outlay and at the same time you hold a larger stock position then purchasing stock directly in any given company.
 This provides the opportunity for you to make larger percentage gains, with less risk.
As an example lets say you buy a stock at $100 and you sell it at $120, netting you 20% increase.
 You could buy the $100 Call option for the same stock and it will cost you $10.
 When the stock rises to $120 you could sell your option for $20.
 That gives you a net of 100% and your risk was $10 not $100.
 The example I just gave is a simplified example, but the concept is not anywhere near as confusing as most people think.
If you are an active day trader or experienced stock trader it should be a breeze.
 Even if your not, options are worth a look, and it will take you no time to figure it out.
 There are lots of places where you can setup virtual trading accounts for stocks and options.
 You can use these virtual accounts to practice your trading skills and learn the terminology.
 Any virtual account you setup will have free tutorials that you will find very helpful and you can even win real cash with some virtual account sites.
  Please be warned that trading Options or stocks is risky.
 Like any investment be prepared to lose all of your investment.
 Do not invest money that you can not afford to lose.

Leave a reply