4 Benefits of Options Trading

by | Aug 23, 2017 | Financial Services

Options trading can seem confusing and is often seen as a riskier move than stock trading, so many people shy away from participating. There are many misconceptions of buying and selling options that scare potential investors away, but it’s not as daunting as it seems. Here are a few things to think about before searching for an options trading advisory service.

1. Cost Effective
Buying and selling options is a cheaper alternative to trading stocks. Options are essentially contracts that give investors the right to sell or buy assets for certain prices by set dates. These contracts allow you access into the investment without having to invest too much money, like you would if you bought stocks. You won’t get the same benefits as a shareholder, but if you’re looking to use options trading as a means of making a profit, this is a cheaper way.

2. Less Risky
Many people think that options trading is the riskier move, but it doesn’t have to be. Using the strategy of hedging, meaning you create a position in one market to offset any unwanted risk or price differences in another market. You also have the added benefit of not being too close to the investment, and having control over how much you want to risk. This helps you to minimize the risk of your investment.

3. More Strategy Options
There are many ways that you can approach options trading. This provides you with leverage as an investor. You can use the covered call strategy, the bull call spread strategy, the iron candor strategy, or any number of different strategies to buy and sell your options. Combining these strategies to work for you can help maximize your profit.

4. Higher Potential Profits
Because you’re spending less money on the purchasing of the options, you will be making a higher profit. Even if you sell the options for the same price as you would stock, your margins are still higher, leading you to more money in return. Depending on your strategies, this could make option trading a more desirable option than stock trading.

More people are familiar with the stock market and stock trading, but the process of options trading is becoming more and more popular. Though it may seem like a riskier move, if you put in the research and utilize strategy, it can prove to be more profitable in the end. This list is just 4 of the potential benefits to options trading.

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