Just recently, options in stock trading have been getting
the attention they deserve from many traders. However, for quite some time now,
investing on options has created quite a stigma in the market especially with
the financial media and a few popular figures attaching such implications that
trading options may be too risky or dangerous.
What you should knowing about trading options however, is
that there are a lot of advantages that one can get from it. And as long as you
are smart in handling your trades and with the use of the right strategies, you
may be able to prevent risks from actually happening.
Cost Efficient
One thing about stock options is that they are well capable
of leveraging or borrowing money in order to increase returns. It can be very
possible for an investor to obtain option positions that copy stock positions
without going overboard with the cost. A strategy known as a stock replacement,
allows mimicking stocks possible but in a cost efficient way.
For example, for you to be able to purchase 200 shares of a
$50 stock, you must pay $10,000. But if you were going to purchase a couple of
$20 stock options, with the options representing 100 shares each, then you
would only have to outlay $4,000 instead of $10,000. As an investor, you would
be able to gain $6,000 for you to use in your discretion.
Of course, the whole process may not be as instant and as
simple as the example provided. But if you are able to choose the right stock
option for the process, then you may be successful in your attempts for this
strategy.
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