Trading options first began in 1973. Many people believe that options trading is a risky investment only reserved for experts. There’s no doubt that options trading is risky and requires experience and proper knowledge to succeed.
However, options also offer a great opportunity to individual investors who would like to expand their investment portfolios.
Options trading has been in existence for more than four decades. It is just that many people have started taking interest in them recently. Most investors have shunned away from trading options because of the general belief that they are sophisticated and too complex to understand.
But things seem to have changed over the past few years. A lot of people have realized the many benefits that come with trading options and are now taking advantage of that.
Benefits of Trade Options
1. They are Cost-efficient
One major advantage of options is that they have great leveraging power. This means that investors can get option positions just in the same manner as a stock option. The difference is with an option position you get to save a lot on costs.
For instance, if you buy 200 shares of an $80 stock, you will be required to pay a total of $16,000. But if you were to buy two $20 calls, then the total outlay would be $4,000. As such, you will have an extra $12,000 to use at your disposal.
2. It is Less Risky When Used Properly
There are scenarios where purchasing options are riskier compared to owning equity. Nonetheless, there are situations when you can use options to minimize risk. This generally depends on how you are going to use them.
Options trading can be less risky since they require minimal financial obligation compared to equities. They are also less risky by nature because of their imperviousness to the grave effects of gap openings. Additionally, options are considered the most dependable type of hedge – something that normally makes them more safe compared to stocks.
3. Higher Potential Returns
This is also another major reason why many investors are starting to engage in options trading. It is no secret that trading options yield higher returns more than any form of investment if done properly. You can make huge returns by investing just a small amount of money. The most important thing is to ensure that you understand how the markets operate and the common tricks.
4. Strategic Alternatives
The other major advantage of trading options is the fact that they provide a lot of investment alternatives. Every experienced trader understands that options are very flexible in terms of investment. According to experts at SoFi Invest, there are a number of ways one can use to restructure other options. Such recreated options are commonly known as synthetics.
Although options trading appears to be complex for an average investor, many people are starting to get involved because of the numerous benefits that they present. It is increasingly becoming evident that options are not as complex as many people believe.
Next, you can consider reading: Special Features of QuickTrade Online Trading