Reasons Why Investors Trade Options
It’s time to throw out the “options are risky” sentiment and truly understand why many investors actually trade them. Contrary to popular belief, options can be used in safer ways when used correctly. In fact, that is why they were invented – to offset inherent risk in stock portfolios.
Options offer investing flexibility. Options can be used in any market environment or personal circumstance. They can be used for any time frame strategy: short, medium, or long.
Here are reasons why options are traded:
a. Risk Reduction – You can hedge out risk in your portfolio with options. Using options are one of the only ways that a retail investor can protect themselves from markets that move against them.
b. Leverage – Instead of owning 500 shares of ABC company at $15 for $7500, with options you can have the right to control 500 shares for a fraction of the cost. With options, you can benefit from changes in the underlying price without having to own the underlying outright.
c. Income Generation – You can create a steady cash flow through existing owned underlying.
d. Limited Risk – Some option strategies, like the ones taught at sjoptions.com, limit trading risk while having high probabilities to succeed.
e. Insurance – You can protect yourself from downward moves in the market.
f. Low Barriers of Entry – Options can be traded by anyone that has access to a computer now that most online brokers offer option trading. Commissions are much lower than what they were 10 years ago. Most brokers even offer option analytical tools and advanced technical analysis tools for FREE when you open a trading account.
g. No More One Way Trading – With options, you do not always have to be bullish.
h. Many Strategies – You have multiple trading strategies to choose from which will allow you to play to your trading strengths.
So you see, options are not as risky as many people perceive them to be. With the right option strategy and education, you can have the peace of mind that your portfolio can be safer in ANY market environment.