Finance

Today we’ll be discussing the differences between investing with stocks and options. Let’s first tackle the less complex investing vehicle, stocks. Most of the world already knows, but in case you don’t, stocks are directional trading vehicles. If we are long the stock, then we make money when the prices of the asset rises, and we lose capital as the underlying asset drops in price. We can also sell a stock short in which the profit comes when the stock falls. In any case when investing with stocks, the direction is what matters. We don’t need to worry about market volatility or time.

Many traders view options as only a short term trading strategy. The idea of a highly leveraged instrument with the potential to make big bucks quickly appeals to the gambler inside all of us. Just like a card counting black-jack player, options can be used to make significant short term profits, provided the trader is careful, and knows what they’re doing. But while options are usually employed solely by that clique of high-risk, high-reward traders, they actually have enormous benefits that tend to go unnoticed by many a long term investor.

Many people view options as only a short term trading strategy. The idea of a highly leveraged bet with the potential to make big bucks quickly appeals to the risk taker inside all of us. Just like a card counting black-jack player, options strategies can be used to make consistent short term profits, provided the user is careful, and knows what they’re doing. But while options are usually employed solely by that group of high-risk, high-reward traders, they actually have enormous benefits that tend to go unnoticed by many a long term investor.