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Top Four Benefits of Investing in Options

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Options have been around for over forty years, though they are just now beginning to receive the kind of attention they should get. Many investors tend to avoid options, thinking them as too sophisticated and hard to understand. Others have some initial experiences with options. For this last group, Tesler Trading believes the problem is that neither the investors nor their brokers received proper training in how to utilize the options. When used in the right way, options offer the following advantages to the investors. 

#1 Needs comparatively lower financial commitment upfront 

Options need much less financial commitment upfront compared to stock trading. The price of purchasing an option (the premium and the trading commission) tends to be a lot less compared to what an investor needs to shell out to straight away buy the shares. 

Also, the options investors tend to pay less money out of their pocket to exist in the same arena. But when the trade goes their way, they end up benefiting as much as that investor who shelled out for stocks. 

#2 Limited downside for the option buyers 

When you purchase a call or put option, you are not supposed to follow through on that trade. When your expectations about the direction and time frame of the stock trajectory are wrong, the losses stay restricted to anything you paid for the trading and contract fees. 

Though there are certain downsides that still exist for the option sellers, the benefits are undeniable. 

#3 Options have inbuilt flexibility for the traders 

The ultimate advantage of dealing in options is that they provide more investment choices. As such, options are a highly flexible tool. There are several ways to use options for recreating other positions, and these positions are known as synthetics. 

Before the options contract expires, investors have a number of strategic moves that they can use, such as: 

  • Exercise that option and purchase the shares they can add to the portfolio 
  • Exercise the option, purchase the shares before selling all or some of them 
  • Sell those ‘in the money’ options contract to any other investor 
  • Potentially gain back a portion of the money spent on the ‘out of the money’ by selling the contract to other investors before that expires. 

#4 Options let investors fix the stock price 

In the kind of action that is a lot like putting a thing on the layaway, the option contracts let investors freeze their stock prices at a particular dollar amount (i.e., the strike price) for a certain time period. Based on the kind of option utilized, it comes with the guarantee that the investors are going to sell or buy the stocks at the strike prices any time before the expiry of the option contract. 

The endnote 

Thus, if you plan to spend some time learning about and understanding options, you are on the right track. Once you know how to leverage options, you will be amazed at how beneficial they can be as investments.