Learn To Trade Options: 4 Reasons To Trade Options Instead Of Buying Stocks

Two young traders breaking down strategies

Although stock trading is much more popular among beginners and despite the reputation of options being a risky investment, options can prove very profitable to investors. Trading options has a number of advantages over stocks that make it much more attractive as an investment opportunity. Options afford much more flexibility to traders. They also offer access to complex strategies that can prove profitable under various market scenarios. Below are the four advantages of options trading that make it worthy of your investment:

OPTIONS LIMIT LOSSES AND OFFER LEVERAGE

Options let you trade with less money on the line. Investors can buy and sell much more regularly than they can with stocks. What’s more, the losses, if incurred, are limited to the price of the option, since options are a derivative investment. Buying options of a stock can be much cheaper than simply buying the shares of that stock. For example, if a stock is trading at $80 per share, 100 shares will cost you $8000. However, if you go for a call option instead, at the market price of $20, it will cost you only $2000 in total. Traders can then use the additional $6000 saved according to their preference. Thus, although trading options involves some complexity, it can prove much more profitable and cost-efficient in the long run. What’s more, you can easily learn to trade options by subscribing to Schaeffer's Options Newsletter!

OPTIONS INVOLVE LESSER RISK

Depending on how you use them, options can conveniently be used to reduce risks. It is much easier to limit risks with options as compared to when trading stocks. Investors can trade options with a very profitable risk to reward ratio if they use the right trading strategies. Generally, the greater the potential return, the greater the risk involved. Of course, with any type of trading, the risk cannot be eliminated altogether. What’s quite favorable in options trading though, is that you can choose the level of risk you wish to partake in. The variety of options contracts available and the numerous trading strategies that you can employ make it much easier to limit the risk involved. You can learn to trade options and minimize risks by subscribing to a comprehensive options newsletter.

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