Options trading offers investors with a more strategic and financial movement which they get by simply buying, selling or shorting stocks. Traders can use options trading to protect against portfolio losses. It lowers the risk of speculative bets in all sorts of market conditions.
Undoubtedly, there are a lot of positives in the options trading. Below discussed are the top benefits of options trading.
Option trading requires a lower upfront financial commitment than stock trading. The price of buying an option is a lot less than what an investor would have to pay to purchase shares outright.
The good point is that in options trading investors pay less out-of-pocket, but if the trade proves to be in the positive direction than they’ll benefit just as much as the investor who sells the stock.
There’s a limited downside for option buyers. When you buy with a call option, you need not follow all throughout the trade. In case the assumptions about the time frame and direction of stock have proved incorrect, the losses are limited to whatever you paid including the trading fees.
Options offer built-in flexibility for traders. Before the expiry of the options contract, the investors can deploy strategic moves which include:
- Add to your portfolio with the addition in the shares.
- Later with the option, exercise sell some or all of the bought shares
- Sell the “in the money” options contract to some other investor
- Smartly make back some of the money spent on an “out of the money” option. Selling to another investor before it expires will be a great option.
Options trading let investor fix a stock price. Option contracts let investors freeze the stock price at a certain dollar price for a fixed period of time. Depending on the type of option used, the options trading guarantees that investors will be able to buy or sell the stock at the strike price before the expiry of an option contract.
Though option trading is a good strategy but still one need to decide smartly whether to buy, sell or hold a stock for the long term, Options investors need to know about the company on which they are planning the investor buy the stock.
Many investors feel that options trading is a complex strategy and add the extra add-on pressure on their financial lives. But still, in spite of certain inherent risk in options trading, it is the best strategy for the investors to make safe money
Category: Leadership & Strategy