Why Options Are Better Than Stocks
I say down to write a presentation for a webinar called Why Options Are Usually Better Than Stocks and ended up with basically no reasons to ever buy stocks when you can buy options.
Over the next week, I racked my feeble brain and was able to come up with two reasons why stocks are better than options. Here they are:
• Stocks usually have better liquidity than options
• There are a lot of stocks with no options or no liquid options outstanding
• Options are harder to learn and monitor
But now let’s look at the reasons why trading options:
• Options have a built in stop loss. So many people forget or don’t want to put in stops or cancel their stop loss orders when the price gets close to stopping them out. Sound familiar? But options, when you buy them, come with a built in stop so you can’t lose more than you paid for the option.
• Options can “save” a trade. Sometimes you buy a stock and it immediately plunges but snaps right back. With a stop loss order, you are gone. Bye bye. But with an option, you can ride out the dip and still have a long position that ends up making money down the road. Not too common but it does happen.
• You can trade with a small account. This is perhaps the big reason why people use options. To buy 100 shares of a $100 stock requires $10,000. But you can often buy an option for just a few hundred dollars. This means you can participate in the anticipated bull market but you can also more easily create a diversified portfolio thus reducing risk.
• Here’s a biggie. You can create strategies that you can never do with stocks. You can put together clusters of options to create unique strategies that allow you to make money from changes n volatility and time. Here is a simple example. Buy a low strike call and sell a high strike call. That is a bull call spread. Let’s compare it to just buying a call. First, you can buy the spread for even less money than a call so even smaller accounts can make money trading. Second, call spreads have a greater chance of making money than buying a call. Finally, changes in implied volatility don’t really affect a call spread but are a big affect on a call. So what do you lose by buying a spread rather than buying a call? Your profit potential is limited while a call is unlimited. So you generally don’t buy a spread when you are wildly bullish but the spread makes sense in many other scenarios.
• You can create an income trading options. There are a lot of low risk strategies that tend to just pound out profits every week. Imagine quitting your job!
I think that trading options has a lot more ways to make money including in sideways marketw where stock buying fails. In other words, you can make money in more market environments trading options than trading stocks.
Would you like to see me trade options? Would you like to see my options trades before I actually put on the trades? So you can look over my shoulder while I make money trading options?
Would you like to hear my analysis of each trader so you can learn more and more how to trade options?
Would you like to continually grow as a trader by watching a person who was one of the largest option market makers in the world create an income trading options?
Now you can!