Trading With Options

Trading With Options

Trading with options has its benefits over stocks, but at first options are more difficult to understand.  Let’s discuss some of the pros and cons of trading with options.

You Can Make Money From Time Decay

An option trader can take advantage of the option Greek known as theta. Stock traders cannot take advantage of this option Greek.  Theta is a measurement of how much an options portfolio can make or lose on a daily basis from the time decay of the options.  For example, if a portfolio of options has a positive theta of 1000,  then theoretically, this portfolio will make $1000 each day from the theta position.  However, this profit created by the theta, does not dictate the overall performance of the options portfolio.  There are many other factors which create the profits and losses, such as price change and volatility shifts.

Be Creative With Trade Structures

A nice thing about trading with options is that you can actually design a risk profile that can profit in any direction you choose. For example, with experience an option trader can design a portfolio that has very little risk on the downside.  An option trader can also make money if the underlying asset does not move very much.  There are literally an infinite number of ways to structure and options portfolio.  This is one of the greatest benefits to trading with options.


Trading with options also involves leverage.  Obviously, leverage is a double-edged sword.  You can either accelerate your earnings or burn out your account extremely fast.  Be very cautious when trading with options, especially if you are just learning.

If you are interested in learning how to trade with options, then it’s highly recommended to learn from an experienced option trader.  Everyone who trades options makes mistakes and loses money at some point.  However, if you learn from an experienced option trader, then you just might be able to become a profitable trader without ever experiencing great losses.



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