Trading Options – Why?

Options trading provide several benefits than any other investment vehicles, including the stock market or even the Forex. Let us look at some:

Leverage

Purchasing a call option gives the investor a good option position that’s similar to stock position. For example, if an investor would purchase 300 stocks selling at $50 per share, he would have to pay $15,000. But if he would choose to purchase three $20 calls (each contract representing 100 lots or shares), he will only have to pay $6,000 (3 contracts X 100 shares/contract X $20 market price). The investor would then have an extra $9,000 to spend or invest on his or her discretion. The process is obviously not as simple as that. The investor would have to know which call to purchase to have a good option position, similar to stock position. However, if you’re looking for a good investment without risking large sum of money at once, option trading is the better choice.

Limited Risk

Investment is said to be for the risk takers. This is good if your risk automatically yields to profit. But that’s not always the case. In options trading, however, you can have unlimited profit potential and at the same time have limited risk. This is because options trading only give you the right to purchase or sell underlying asset, and not the obligation. Meaning, if the price isn’t right at the end of the contract, you can just ignore and let the contract expire. If, however, you can profit for the change in shares prices, you can assert your right and pursue the contract.
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