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Options Trading – Pros and Cons

August 23, 2012

ETF

Options Trading – Pros and Cons

 

Options trading is an advanced form of investment which works by giving the owner the right to buy or sell an asset at a certain price and for a certain amount of time. Like a contract, options trading provides the potential for ownership if certain guidelines are followed. However, there are many aspects to options trading strategy which might be too complex for a beginning investor. Here, we’ll take a look at some pros and cons.

 

Pros of Options Trading

One of the biggest benefits to successful options trading strategy is the ability to leverage capital without tapping into funds from a larger investment portfolio. This gives traders the ability to still engage in significant trades without having to sacrifice a large amount of money.

Alongside this flexibility comes limited downside risk because experienced traders are able to stay in tune with the cadence of the market, allowing them to make educated options trading decisions. One of the biggest upsides to this form of investment is that there are many options trading strategies which can be put into place in nearly any market environment. Investors are able to use options to suit their needs, provided they are able to read the market well and decide which strategy works best with their overall investment portfolio. Options trading brings with it the potential for big gains in a short amount of time for experienced investors who understand options principles, so if you are well-versed in finances and the specifics of options, this form of investment could be a huge opportunity for you.

 

Cons of Options Trrading

Like we mentioned before, options trading strategy is complex and should not be pursued by beginning investors.

Options can get exotic with all of their different permutations and combinations of spreads that are imaginable. Compounded with the fact that there are less than 20% of options contracts being exercised, making educated decisions is essential if you are looking to make any sort of return. The majority of options contracts are bought or sold to close petitions, with the remaining portion of contracts expiring worthless. These are all important things to keep in mind if you are going to venture into options trading. While it can prove to be very profitable for experienced investors, it is always best to explore your options and educate yourself before committing any funds from your financial portfolio.

Are you interested in options trading strategy? Learn more at InvestorPlace today!

InvestorPlace.com is the leading financial news and investing site, providing millions of individual investors with access to free stock picks, options trades, market news, investment research and sharp, actionable commentary. Thanks to a suite of expert advisors, InvestorPlace.com publishes insightful articles on every corner of the market – from mutual funds and ETFs to options and active stock trading.

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