Interestingly, options have been in existence since 1973. They are said to be risky investments but that notion is proving to be erroneous. Options can be quite beneficial to you on your wealth-creation endeavours.
Despite having been around that long, options trading is only starting to make its presence felt. Many investors have hitherto regarded them with a certain trepidation deeming them complicated. However, this attitude is more due to a lack of training than any issues to do with options.
Just like any other investment tool, options must be used properly. This investment option brings to the table a few advantages as explained below.
Benefits of Options Trading
When you use options properly, you stand to enjoy benefits such as the following:
1. Minimised Risk
While sometimes buying options can be risky, there are instances where they are the better option.
- You can use options to reduce risk depending on how you use them.
- Compared to equities, options require a much less financial commitment.
- Options are not as vulnerable to the effects of disastrous gap openings
- They are less risky than stocks since they are the reliable form of hedge. When you buy stocks, you must use a stop-loss order to protect your position. However, the order is only effected when your stock trades either at or below the limit indicated in the order.
2. Excellent Leveraging Power
Options are cost-efficient because the leveraging power is exceptional. You can access an option that is equal to a stock position. However, you will spend a lot less money than you would in the stock position.
To be successful, you must pick your call to buy correctly to ape the stock position accurately. This is called stock replacement; a cost-effective and feasible options strategy.
3. The Potential Returns Are Higher
Naturally, if you spend less and make nearly as much profit, your return is higher. That is what you get with options trading when your cheque clears.
4. A Wide Range of Strategies
Options offer traders plenty of investment alternatives. Options trading is an absolutely versatile investment tool. There are many positions (synthetics) that can be used to create more positions in this form of trading.
These positions allow investors to create many alternative ways to achieve the same investment objectives. For instance, there are two types of brokers an investor can opt for:
- One who charges a margin when you decide to short a stock: The problem with this one is that the cost of the margin can turn out to be quite exorbitant.
- One who prohibits the shorting of stocks: When you are limited thus, you are forced to view your trade in a tunnel. As a result, you miss out on all the advantages of the less restrictive trading going on around you.
Fortunately, there is no broker that will prevent you from buying puts to play on your downside. This gives you plenty of trading benefits.
Options trading avails the serious investor a chance to trade stock movements. In addition, you will be able to take advantage of the unpredictability of the markets and gain from that. You will realise with time that not many markets have large movements most of the time.
In order to be in a position to achieve your financial goals, you must learn to exploit inactivity.
Options have quickly gained a lot of attention. It is easier for investors today to exploit a tool such as options owing to the many online platforms available. In addition, the commissions charged by these platforms and brokerages are extremely low.
Therefore, spend a little time learning how options trading works from the experts. Find out if this form of trading is a viable investment tool for you. You will, without a doubt, find out that it is. In HK, you can find a great platform that will guide you and provide valuable insights as you advance in your options trading journey.