Some people view stock options as complex investment vehicles filled with risk. True, there is risk involved, but is that not true of nearly every type of investment? Options have made much progress in the past 50 years and they are now more widely understood. Since some of this understanding may have arisen due to scandal, let?s explore why trading options is smart.
The leverage involved in options trading is what attracts many investors. For much less money than is required to purchase the shares individually, an option trader has control over an equivalent amount of stock. This leverage allows investors to make a great deal of money trading options that experience only minor price movements. Experts say that leverage is the number one reason options are included in a portfolio.
Using stock options, investors can place leveraged bets regarding the direction of the stock price. By using certain option trading strategies, they can also profit when a stock does not move in price. Having the ability to trade both volatility, based on movement or non-movement of the stock price, and direction, down versus up, is something that individuals should not overlook when trading options.
Commissions for options are higher than for stock trades but in recent years, these have experienced sharp price declines. The increasing volumes in options trading have put downward pressure onto commissions. Heavy competition resulting from the recent addition of multiple online options discount brokers should allow commissions to remain low in the future.
Decreasing commissions, the possibility of sideways, up, and down trades, and leverage are three aspects that draw investors to trading options. Leverage has additional benefits, allowing investors to use options for portfolio security or a hedge. By implementing different option trading strategies, traders are able to completely control their exposure to risk, making these an even more attractive investment tool.
If you are considering trading options, it is extremely important that you educate yourself on the terminology and the technicalities involved. For full guides on trading options, investment strategies and trading tips, check out WallStreetOptionTrading.com today!