If you are considering a foray into the world of trading stock options, there is something you should know. When you use the right options strategies, brace yourself. The benefits will blow you away.
Options Trading and Stock Investment-The Quick Look
Before getting to the benefits, why not take a moment for a quick course on how options trading differs from buying and selling stocks? When you buy a stock, you own a piece of the company in which you are investing. If the value of the stock goes up, you earn money. If the value goes down, you lose money.
Options, on the other hand, are contracts that enable you to buy or sell a stock for a fixed price within a specified period of time. Unlike outright purchase of stocks, some options trading strategies enable you to make money on an option even if the stock price should drop. For every option bought, there is an option sold.
Investopedia explains the difference in perspective between stock trading and options trading, noting that an investment in stocks is like gambling in a casino, where all players bet against the house and all players have the opportunity to get lucky and win or get unlucky and lose. But options trading is more like betting on a horse race, where gamblers are actually betting against each other. In other words, the option buyer’s win is theoretically the option seller’s loss and vice versa.
It is this basic difference that makes trading stock options so beneficial. Here, then, are three ways you can benefit with the right options trading strategies:
1) Options give you more leverage than stocks.
Options cost a fraction of what a corresponding stock would cost. That means that you can control the same amount of equity for a fraction of the capital outlay. This makes options trading very attractive to those who want to start investing slowly, or to those who do not have a lot of initial capital with which to work.
There are many regular stock investors who use the money earned from options trading to fund stock investments over time. Such investors consider options trading as a way to seed their investment portfolios in the short term.
2) With options trading, you can limit your risk.
A huge benefit of options trading is that you cannot lose more than you actually invest. This is significantly different from regular stock trading, in which you can lose your entire investment if the stock goes south. When you trade options, your maximum risk is defined entirely by how much money you put into the option.
For many options traders, this is a serious benefit because it insulates the investor from major financial risk while still enabling him or her to learn the ropes of options trading.
3) Options trading affords you greater versatility.
A truly great benefit of a good options trading strategy is that, with a little understanding of how options work, you can make money whether the stocks go up or down or even sideways, for that matter. In other words, you can actually be wrong about what will happen with a stock and still end up making money. How’s that for a benefit?
And just because we always try to deliver more than we promise, here’s a BONUS BENEFIT for you:
4) Options trading can net you a large amount of money in a short time.
Unlike stock trading, where you typically need to hold onto your stock for a fairly long period of time to make the kind of profit you need to see, options trading can supply you with a quick turnaround on your investment. This makes options trading an attractive proposition for anyone who would like more cash in hand quickly.
To craft a winning options trading strategy, you need the right tools and the expertise to use them well. Best Choice Software has been helping investors like you weather the ups and down of options trading for over 15 years. Our Market Timer software is designed to aid your decision-making process and help you discern the patterns you need to see to invest wisely. We invite you to try Market Timer for one month, and start reaping the benefits of options trading now.