Is Options Trading Better Than Stocks? I’ll give you the knowledge you better be the judge 🙂
Why do people ask, is options trading better than stocks? I wonder because they look for quick answers if I’ve to invest a lesser amount or more to make money trading.
Yes, I gotta tell you that, you are not the only one looking for this. As a result of this simple question, I get to answer many who are shy and don’t like to ask a question.
I recently answered a question, is day trading a good idea. Because 80% of intraday traders turn to be investors as Mr. Warren Buffet has mentioned.
You may find this article too fascinating if you are a new trader and wondering to decide to learn stock trading or options trading.
So without further ado, lemme give you the advantages and disadvantages to the question is options trading better than stocks.
Advantages of Trading Options
I gotta tell you, options trading has more salient features compared to trading stocks in the market. Because of this, options are the most traded assets in the market.
- You gotta select only 1 CE (call) and 1 PE (put) to trade an uptrend or a downtrend.
- The investment in the options is so low that, you can make as much money trading futures. As a result of this, you’ll not require the huge margins required for futures trading.
- Brokerage with options trading is hugely low with top brokers like trade plus, as low as Rs.99 for unlimited options trading.
- Options have the lowest margin requirement as there are none. As a result, you trade with your own money and your own risk.
- Your returns can be more than 100% as options have the potential to go up 300 – 400% in a day.
- When options trading with buying the options, you can only risk the money you’ve invested as a premium.
- They are very easy to analyze as it follows the futures chart of the underlying asset. Because of this technical analysis are ease and a breeze.
- You only need to learn the scratch of the surface basics of the stock market to understand options.
- It’s very easy to learn the basics using the books of stock markets. As a result, options trading is easy learned than at any time in the history of stock markets now. Here’s a live options trade which made me sweet 60 points.
- Since options trading is so lucrative, the liquidity in options is way higher than stock tradings.
Disadvantages of Options Trading
The eruption of trading in options created a history in the appearance of the retail traders in the market. However, it caused a lotta confusion due to the nontraditional method of its movement.
In a day options increased or decreased by 50% – 400% which caused huge losses on the upside or the downside. Because of this, the retail traders took huge haircuts in their trading corpus.
So SEBI, over a period of options existence, has introduced multiple restrictions, so the retail trader loses less money in the market.
Let’s look at the disadvantages of options trading.
- Without a good knowledge of technical analysis, you are staring at a huge loss as the free fall may be huge.
- Because of the time decay, retail traders tend to lose money than gain money buying options.
- Due to the multiple levels of the strike price, it could be a confusing task to understand which options to trade.
- My personal experience is, traders tend to build their loss thinking it’ll recover rather than wait for the target to hit. As a result of this, their profits run low and losses run huge in options.
- Because of the volatility, the options can be a killer, as stop losses get hit without hitting the targets.
- Options tend to have unlimited loss potential, in case the trader is selling the options. As a result of this, your losses run deep, if you don’t happen to trade with caution.
- In case you are writing options, which means selling options, you’ve gotta have the margin of futures in your trading account.
Advantages of Stock Trading
Stock trading, which is the traditional method of trading in the secondary market is the best-known trading methodologies.
As a result of this stock trading, is still vastly employed by huge FIIs, DIIs, and Mutual Fund companies.
Stock trading is hugely beneficial in long term, as in short term, it poses the risk of reacting to rumors a lot.
Without further ado, let’s look at the advantages of stock trading in India.
- Because stock trading is so vastly popular, individual stocks tend to move heavily. As a result, the profits can be huge.
- Since stock trading is very popular top 10 brokerages offer up to 7X margins on the money you deposit. As a result, in the case of Rs.10000 deposit, we seem to be able to trade up to Rs.70,000.
- Stock trading is very liquid, meaning, you can buy and sell literally at any level. As a result, you may even trade at the lowest or the highest levels of the stock without fear of not being able to sell your holding.
- Also, when you hold the stocks, other than the appreciation, stock company offers you dividend for holding it.
- Stocks you hold for 1 year or more is considered as long term gains. As a result of this, you don’t have to pay taxes on the gains in stocks above 1 year investment.
- You own a piece of the company unlike options when you buy stocks. As a result, with higher holdings, you get to decide the decisions of certain things happening in that company.
- Unlike options, stocks don’t have an expiry and can hold as long as you want. As a result of this, a stock invested in early 1985, can still be liquidated or sold in 2021.
- Annualized returns can beat inflation compared to fixed income schemes!
Disadvantages of Stock Trading
- Return on investment is not even near to that of options.
- Your stock holding is subject to AMC (Annual Maintenance Cost) with the storage company, CDSL, or NSDL.
- Brokerage compared to options trading, is high for stock trading.
- You would require a higher amount of investment for stock trading compared to options. Because stocks tend to be highly priced and low on movement.
- Since there are multiple stocks, many stocks hardly meet good volumes. As a result of this, your stocks bought are not liquid enough though the stock reaches your target level.
- Also, there are multiple stocks available in the market, and you hardly know which moves when. And trading the right stock with good movement is very hard.
Is Options Better Than Stocks?
A) I think so. With very less investment, you may gain 10% in a day without a lot of risks.
Are Options Trading Safer Than Stocks?
A) Yes and No. Options are safe when buying options because you can only lose as much as your investment. No, it’s not safer than stock trading, when you are selling options, and your losses can literally be unlimited.
So there you go, I think you got the answer for is options trading better than stocks.
I would like to leave the judgment to select either options trading or stock trading, as per your comfort. Also, I think I made justice without bias to list all the advantages and disadvantages of options vs stock trading.
I’m quite keen to know if you thought the article was helpful to you. If so, please share this with others.
Can you also make sure to read crucial advice for anyone, starting to invest in the stock market before starting to trade in options or stocks?
I feel, so excited, that you took the time and read through to the end. You are AahSummm…. See you all in my next blog post.
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Happy Trading and Happy Money Making!