Is Option Trading Worth It? 6 Reasons Why You Should Considered It
We know you have been thinking if is option trading worth it and we know what you have been doing.
You probably are a stock trader or a futures trader that have just come across a term called option. You have been investigating what an option is and how can it help you, right? But you have not come to a conclusion yet.
You really want to answer one simple question: Is option trading worth it? Should I invest my time learning about it? Because it sounds so complex and hard to understand at the beginning that you do not want to lose time on useless things.
Do not worry, we are going to explain to you here what are the main things you can do with options so you can take your own conclusion. We will not deep down into technical things, we will go straight to the point. So let us get to it!
Table of Contents
As a trader, is option trading worth it?
First of all, what you need to know is there are two types of traders in options: those who buy options or those who sell them. If you want to be a successful trader, you should focus on selling.
Probability is the core of options
The nature of options is based entirely on probabilities. That said, you need to know that before opening a trade, you will know beforehand how probable is you win or you lose your trade, and that is one of the main differences with any other asset.
As a seller, you have an advantage
If you sell options, you will make money in two different scenarios: either if the underlying (the price of the stock whose option is issued) does not move or if it moves in your direction.
The buyer will only make money if the underlying moves in one single direction. If it not moves, you will lose money because of time decay, another characteristic of options.
Even though we prefer selling options, you need to know that sellers are exposed to much more risk than buyers. However, the selling strategies are much more probable to win, and in the long term, they are much more profitable.
An option trader can create neutral strategies
Unlike with any other asset, with options, you can define neutral strategies such as the Iron Condor. You could open a trade in which you will make money if the stock price, stays between two prices we define.
As an investor, is option trading worth it?
Yes, because it is one of the best things you could do to complement your investments. We have three main reasons to say this
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You can pay half the price for opening an investment
Even when we have told you that to be successful in options, you want to be selling them, there is one case where the buyers get benefited.
As a buyer, you could purchase an options contract for a stock you think is going to be growing in the future. By doing so, you can pay half the price to control 100 shares of that particular stock, thus reducing the risk of your investment.
You can make money by waiting for a stock to reach your target price
There is a particular selling strategy called the selling put in which you can make a small profit while waiting for the stock price to reach the price you want, thus, reducing the average price of your investment.
You can make extra money selling options if you have already stocks
If you happen to have an investment of more than 100 shares of a stock already, you could sell options against your shares to make extra money.
This does not mean that we will be selling our shares because we can control the probability of that happening before opening the trade. This strategy is called the covered call, and you can read more about it here.
So, is options trading worth it or not?
Absolutely! It does not matter if you are a trader or an investor, learning how options work will give you many more opportunities of making money in the long term.
We strongly believe that options complement stocks or futures as you can perform very interesting and profitable strategies with them. Every trader and investor should know about options, indeed!
If you want to learn options, we have created a completely free Options Trading and Investing guide so you do not have to wander the internet looking for information. Everything you need, you can find it here:
