If you’re new to the trading game, you might be wondering about the advantages of trading options over stocks — or vice versa
When you purchase a stock, you own a small portion of that company — whether you chose to buy that stock because you believe that its value will rise over a period of time or that the company will become more valuable.
However, trading options is extremely different from trading stocks. In fact, it’s best to think of options as what they’re referred to by most traders… derivatives.
Options are contracts that give you the right to buy or sell the stock at a specific strike price by an expiration date, and their prices are directly linked to the price of the stock they’re representing.
But like with everything in the stock market, there’s always going to be a downside, so the key is figuring out which style of trading has the greatest advantage for you…
The Advantages of Trading Options Over Stocks
In 1973, Wall Street got a lot more interesting: Options trading was introduced. The rest, as they say, is history.
Options trading can offer a dependable hedge… along with the potential for massive profits. But, you have to understand what’s going on in this market if you want to see any success.
When it comes to trading options, the advantages of it will always outweigh cons — especially when compared to trading stocks.
When most new traders think about stocks, they’re usually thinking of penny stocks (that you can use with a small account, though extremely volatile) or day trading (where you need a massive account of over $250,000 and trading is still risky).
But buying options works differently: The max amount of money you can lose is the initial amount of money you pay on the premium, and traders don’t need some huge account — you can start with as little as $2,000!
Watch the video below to watch the major advantages of trading options over stocks, and share your thoughts on it in the comments below.