It’s no mystery why so many traders have flocked to Options in recent years. Buying and selling Calls and Puts offer plenty of advantages over traditional stock and ETF trading strategies, and easily complement just about any investing approach.
Trading options may just be the “New Frontier” for retail traders.
Here are “The Big Four Benefits of Options” – Four compelling reasons why options are in such high demand:
1. Low cost of entry. A Call option contract based on 100 shares of stock is far cheaper to buy than the shares themselves. So if you’re bullish on a particular security, but don’t want to tie up a lot of capital in the trade, buying a Call would be a more economical choice than purchasing the stock outright.
2. Leverage. Due to the comparatively low cost of entry on an Options position, buyers get to enjoy the benefit of leverage. Specifically, this means that traders stand to collect profits many times greater than their initial investment if the price of shares make a move in the right direction.
3. Limited risk. In a straightforward Call- or Put -buying strategy, the maximum potential loss is limited to the initial premium paid. Since it’s less expensive to buy Options than an equivalent amount of stock, speculating with Options typically carries a lower possible risk than a comparable stock play.
4. Flexibility. There are many different ways Calls and Puts can be combined to create different strategies for every type of situation — whether your forecast for the underlying security is bullish, bearish, or anywhere in between. In addition to speculating on direction, you can also use Put options to hedge (or provide insurance on) your long stock positions. Meanwhile, buying Puts on select stocks or sectors is an easy way to ramp up your bearish exposure during periods of market turmoil, without taking on the high risk of a traditional short-selling strategy.
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