Investing

Why buy stocks when you can trade stock options?

Many of us would jump at the chance of buying stocks in a company, be it one that is already successful or one that you know is going to be successful. However, for many the dream of been a stakeholder dies as soon as the stock price is quoted! You see, buying stocks is not cheap, or maybe I should say buying enough stocks to make a return on your investment is not cheap.

As I write this article, the current price of buying a share in Facebook is $24.31, this is not a lot of money by a long stretch of the imagination but I would need to buy at least 100 shares to see any kind of significant return – and there is no guarantee that I will see a return. However, there is another way that I can invest in Facebook stocks without having to pay thousands of dollars for shares, and a way that I can profit regardless if the share prices rise or fall. How you might ask, and I would answer by buying stock options, not stocks!

So what is the difference between Stocks & Stock options?

Stock options are the derivatives of stocks, deriving their value from the movements of the actual physical stocks. The main difference between the two is ownership, when you buy stocks you have an equity stake in the company but when you buy stock options you have no ownership in the company, you simply have the right to buy or sell the option.

Stock options are limited by time; purchased as contracts they are valid until a given date. Buying or selling is possible until that date, but after the date passes, the option contract expires.

The advantages of stock options:

The main advantages of stock options over stocks are accessibility, price, and profitability. Stock options can be purchased at a fraction of the price that you would pay for a stock, and you can profit from your stock option in both rising and falling markets – so it is a win, win situation. In addition, the return you get from trading stock options is far greater; you can make returns of up to 71% or more stock option trading with anyoption.com or other such binary option brokers.

Stock option trading:

Getting started in stock option trading is straightforward, it does not require you to be present on a trading floor, nor does it even require that you even have knowledge of trading, or markets. All you need is an option broker and a little capital to invest – the amount needed will depend on the broker that you are using.

There is no shortage of online trading brokers; websites that allow you to set-up and account and trade assets from different stock exchanges around the world. They all require a minimum deposit before you can trade for some it can be a couple of hundred dollars other you can deposit as little as $20 dollars to get started.

The trading process itself is very easy: E.G, if you think that the price of Facebook’s stock is going to increase then you take what is known as a “Call” option, if you think that it will decrease then you place a “Put” option, if your predication is correct you can make high profits. However, if your predication is wrong then you stand to lose all of your initial investment.

Just to wrap this up!

So there you have it, if you have an interest in stock market trading but do not have the capital to buy physical shares in a company you should consider the alternative of buying stock options, you really can make considerable profit with this form of investment. However, keep in mind that you can also lose money but that is just the nature of the beast when it comes to investing and stock market trading.

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