Options trading is gaining ground in the financial markets, it has caught the interest of so many traders and institutions. There are thousands of reasons why investors should consider investing in options. Trading options is one of the best investment decisions you can ever make this year.
Options trading comes with lots of benefits and advantages which makes it a great financial asset for any trader to invest. In this article, we simplify why you should consider trading options and the positives of options trading.
What Are Options?
Firstly, it is important to know what Options are before looking at the benefits that they offer. Most traders find it difficult to understand options trading.
Actually, options trading is very easy to comprehend. It simply refers to a financial instrument whose value or worth rests on a group of assets such as bonds, stocks, and ETF’s. Options contracts usually represent 100 shares of the underlying security, and the buyer will pay a premium fee for each contract. For example, if an option has a premium of 50 cents per contract, buying one option would cost $50 ($0.50 x 100 = $50). The premium is partially based on the strike price—the price for buying or selling the security until the expiration date.
Furthermore, options are derivatives, hence, their value is derived from an underlying asset. The “CBOE” Chicago Board Options Exchange is where the largest amount of options contracts are traded daily.
Benefits of Trading Options
1. It is Flexible
One of the advantages of trading options is that they give traders more flexibility over their trades. Options are a versatile trading asset, hence, investors can use different trading methods to achieve the same investment goals.
The flexibility of options trading makes it compatible to fit into the trading goals, needs, and requirements of investors. When trading, you can place a trade either bullish or bearish and also pick your amount of contracts (risk) per trade.
2. It is Cost-Efficient
You don’t have to spend large sums of money to trade or invest in options. Investors can start trading options with little investment. The cost of purchasing an option is lesser than what you have to pay to purchase shares completely.
3. Higher Rewards
Trading options offer investors a higher return on investment. It is obvious that investors can make bigger returns on trading capital as options trading can be started without spending thousands of dollars. You can trade around company press releases, stock earnings dates and political events.
4. Less Risk
The risks of trading options are not high as presumed, in fact, these risks are risky less but this depends on the way you utilize them. Many tools and back tested studies are provided by most brokers to ensure a great experience for traders.
Although they are risks involved in options trading, however, these risks are minimal and they can be managed.
Options are versatile financial securities. It is gradually becoming one of the most frequently traded instruments in the financial markets.
Proper knowledge and information on how option trading works will help you to make the right trading decisions. We hope that this post has helped you understand the benefits of options trading.
If you are skeptical about investing in options in 2020, do not hesitate to make a trade.