These advantages make trading stock options the best investment vehicles available.
1.Less risk. Most people assume that options have higher risk then stocks because you can lose 100% of what you invest. While this part may be true the amount you invest with options is lower then what you would invest with if you buy the stock. For example an option on a $50 stock may be just $3. Because of this you are only risking $3 on the trade. If you had bought the stock you would be risking $50.
2.Higher profit potential. Stock movements are magnified with options. If a stock moves up 10% that could mean an option will move up hundreds of percentage point. Because they are so highly leveraged a small move in a stock could mean a big move in the option.
3.Options can take advantage of all market directions. While call options make money when a stock goes up, put options make money when a stock goes down. This can be very benefitical in a bears market when it is hard to find stocks that are going to ralley but easy to find stocks that are going to tank.
4.Options can be bought and sold. Because of this options not only let you take advantage of what a stock is going to do, but they also let you take advantage of what a stock is not going to do. That can be helpful when a stock doesn’t do much at all.
5.They help you to get out a losing trade faster. Most new traders will buy a stock and watch it fall. These traders do not sell their stock because they expect it to go up in the long run. So they hold onto it and watch their loss get bigger and bigger. If they had an option on the stock they would have been able to take a small loss and move onto the next trade.
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