Why trade options? Why are options a better choice than futures, forex, and stocks?

Why trade options? Why are options a better choice than futures, forex, and stocks?

Apr 27, 2020 | 0 comments

Options are extraordinary trading instruments that open up a world of possibilities for traders (not for nothing they are called “options”). The name of our company stands behind that pillar of offering possibilities by offering Lots of Options.  

The ability to manipulate trades when trading options translates into endless possibilities for the generation of income or capital gains. 

While one should not over-leverage when trading options, such as in the case of Long Term Capital Management in the 1990s, when used responsibly, options can create vast wealth, limit downside, and define upside so that you can examine risk first and evaluate gains second. 

To better explain the benefits of trading options versus other instruments, let’s imagine two scenarios:

  1. One morning the market shifts because of the CoronaVirus, the Asian Contagion, or Irrational Exuberance as Former Fed Chairman Alan Greenspan called it, or because the mortgage bubble bursts. If you own 20,000 shares of the S&P 500 Spiders, your loss would be 20,000 times the number of points that the market falls and possibly continues to fall as you hope and pray that one day you make your money back. 
  1. You control 20,000 shares of the S&P 500 Spiders and you have a five dollar credit spread.  As opposed to the possibly life changing losses you would have in the case above – especially if you are trading on margin, –  a five point credit spread means limited risk to the 5 points minus what you received from the credit of the trade, and in a time of crisis, five points are not only normal, but manageable. 

In the example above, the credit spread would have offered more protection and even allowed for the changing of position by moving to a debit-spread in the direction of the short side, with less damage to the overall portfolio. Something that owning naked shares of stock would not have allowed. 

Without a crystal ball, traders rely on charts, market profile indications, and market internals, and try to be as objective as possible, but bias and emotions often come into play for both seasoned and new traders. Knowing that risk is sometimes inevitable, trading options are a great way to limit that risk.


Submit a Comment

Your email address will not be published. Required fields are marked *


  • Tenable To Buy Accurics For About $160 Mln In Cash - Quick Facts September 13, 2021
    (RTTNews) - Tenable Holdings Inc. (TENB) said that it agreed to buy Accurics for a total purchase price of about $160 million in cash, subject to certain customary purchase price adjustments. The acquisition is expected to close late in the third quarter or early in the fourth quarter of 2021. Following the completion of the […]
  • Farmmi, Inc. Prices $81 Million Underwritten Public Offering of Ordinary Shares and Pre-Funded Warrants to Purchase Ordinary Shares September 13, 2021
    LISHUI, China, Sept. 13, 2021 /PRNewswire/ -- Farmmi, Inc. ("Farmmi" or the "Company") (NASDAQ: FAMI), an agriculture products supplier in China, today announced the pricing of an underwritten public offering of ordinary shares and...
  • 3 Stocks Insiders Are Buying September 13, 2021
    When insiders purchase shares, it indicates their confidence in the company's prospects or that they view the stock as a bargain. Either way, this signals an opportunity to go long on the stock. Insider purchases...
  • MiMedx: Phase 3 PF Study Fails To Meet Primary Endpoint; To Pursue Phase 3 KOA Confirmatory Studies September 13, 2021
    (RTTNews) - MiMedx Group, Inc. (MDXG) reported top-line results from two late-stage musculoskeletal clinical trials of its micronized dehydrated Human Amnion Chorion Membrane: a phase 2B clinical trial for the treatment of Knee Osteoarthritis and a phase 3 clinical trial for the treatment of Plantar Fasciitis. The phase 3 Plantar Fasciitis study...
  • AbbVie Inks Eye Care Deal With REGENXBIO September 13, 2021
    (RTTNews) - Lake Bluff-based biopharmaceutical company AbbVie (ABBV) has joined hands with Rockville-headquartered REGENXBIO Inc. (RGNX), a clinical-stage biotechnology firm to develop and sell RGX-314, an eye-care therapy, the companies said in a statement on Monday. RGX-314 is a potential one-time gene therapy for the treatment of wet...