Trading Options is far more complicated than trading shares. One great difference between shares and options is that shares gave you a small piece of ownership in the company, options are just contracts that give you the right to buy or sell the shares at a specific price by a specific date. It’s important to note that there are always two sides of every option transaction that is a buyer and a seller.
If you buy a share option, you get the right, to buy or sell the shares at a fixed price by an appointed time. If the market moves in your favor, you gain; but if you get it wrong, all you lose is the price you paid for the option.
One of the advantages of trading options is the leverage that options provide. You can gain greater trading advantage by using a small amount of your trading capital.
Advantages of Trading Options over Shares :-
1. Money can be made in both the bull or bear market.
2. Leverages can be used to trade without the need for high capitial to get started.
3. More complicated and sophisticated strategies can be used to protect your money and to make more money.
4. Hedging can be used as a form of insurance protect a position.
Disadvantages of Trading Options
1. In options, there is no long term trading (buy/sell and hold and earn interest).
2. You have to learn to pick shares and then you also have to learn option trading strategies.
3. Shares can move in the direction you predicted but you may still not make any money.
4. Options have a lifetime, it will expires.
5. In options trading, when you make money someone has to loose the same amount you made.
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