One More Reason To Trade Options Instead Of Stocks
By now most options traders are aware of the numerous benefits to using options. As options trading grows in popularity, more and more people are trading options rather than stocks. I personally believe there are very few reasons left to trade stocks.
The clear advantages to using options include the ten to one leverage (compared to stocks) and the ability to tightly manage risk. And don’t forget the flexibility to build spreads and custom strategies.
And that’s not all…
One benefit to options which isn’t quite as obvious as the others is the easy access they provide to certain assets. Some indices and stocks would be too expensive or flat out inaccessible to retail traders without options.
Just think of some of the most popular stocks out there. Apple (AAPL) is trading for around $500, Google (GOOG) for $870, and Priceline (PCLN) for $940. How many retail traders can afford shares at those prices?
In fact, some speculate that the reason we’re not seeing stock splits these days is because of how easy it is to use options instead. Keep in mind, options are far cheaper than stocks and provide more flexibility.
Why would management go through the hassle of doing a split if investors can just trade options? (Others believe the lack of stock splits are due to companies catering to institutional investors, but that’s a different story.)
Whatever the reason, it’s clear that options on expensive but popular stocks are heavily traded.
Are GOOG shares too expensive for your tastes? Just buy vertical spreads to reduce the cost. Is AAPL too volatile for you? Try using strangles or butterflies to reduce risk in your portfolio.
The examples are nearly endless. And, it’s just another huge point in options’ favor. Once again, I see very little reason to trade stocks over options in most scenarios.
Now, don’t just rush off and trade options without doing your homework. You still need to fully understand the nuances and details of options trading before diving in. I recommend doing some paper trading before ever executing a live contract.
But once you start using options, you’ll see the obvious benefits. And, you may even start wondering why you ever traded stocks to begin with.
Yours in Profit,
Gordon Lewis
Category: Options Trading
