Why Trade Options?
Options being the most versatile instrument in the derivative segment helps the traders in many ways.
It is used to manage risk, generate income, leverage the existing trades and make profits under almost all types of market conditions.
Options can enable the traders to speculate on the asset when it is expected to rise, fall, or move sideways within a selected time frame.
With options, one can engage with limited or unlimited risk. The versatility of options, in combination with leverage, is what makes it different from other trading vehicles.
The key to success while trading with options is to first determine your view on the stock and simultaneously the time frame and then determine the option strategy that can meet that perspective.
Let me list down some reasons why Options are every trader's favourite!
Leverage
An option contract helps a trader leverage their position to a great extent. It involves paying up a cost that is usually a small fraction of the cost of what he or she would pay for an equivalent number of shares otherwise.
The cost basis is very low when trading options. The position is much more sensitive to the underlying stock's price movements, and hence the percentage returns can be much greater.
Trade in every market scenario
Options help you generate income from almost all market situations. Traders make profits from trending stocks. Traders use puts and calls to ensure that you can make money if the stock goes up, down, or even sideways.
Volatility
Different options strategies protect or enable the traders to benefit from factors such as time decay, volatility, lack of volatility, and more. A correct reading and assessment of volatility can take you a long way in generating constant profits.
Hedging Tool
Options are a great hedging tool. It enables you to substantially reduce your risk of trading, or even eliminate risk altogether with certain hedging strategies.
So, with all the different benefits of options, why on earth would traders not be eager to learn more about them?
