The Pros And Cons Of Stock Option
Posted by Nandini Mishra on May 24th, 2017
Indian Stock Market is a very big market with High liquidity and Traders comes with high expectations to earn money in this market. Option segment is best for positional traders and momentum players. Trading in option segment requires less margin compared to delivery of NSE cash stocks.
Options are the most dependable form of hedge, and this also makes them safer than stocks. When an investor purchases stocks, a stop-loss order is frequently placed to protect the position. The stop order is designed to "stop" losses below a predetermined price identified by the investor. The problem with these orders lies in the nature of the order itself. A stop order is executed when the stock trades at or below the limit as indicated in the order.
Option As the Name Suggests huge kind of options to choose while the trader wants to trade in Derivative Contracts.
We strategized differently and provide Call put option tips for Stocks with proper SL and Target.
Stock Option Services
ProfitAim is the Best stock option tips provider in India for Intraday trading in Nifty Options. We provide only sure shot stock option tips so that you can trade in stocks with high volume and best accuracy.
Stock option tips are not as like cash calls which need to put number of shares to buy, all are said in lot basis which differed from each company. Stock option calls given by ProfitAim Research is sure shot and maintained an accuracy above 90%.
Stock Option service segment is especially designed for traders who trade in Stock Options positionally. In this pack, we provide two to three calls in Stock Options and also best stock option trading tipsandfree stock option tips which specially focus on positional calls in stock options in industry,
We will teach you, How to trade without losing your capital in stock options?
Let us see the pros and cons of Stock Option:-
Pros of Stock Option
- Low Entry Cost- Stock options are cheaper to buy than the stocks from which they derive their value.
- Cost Efficiency - Options have great leveraging power. As such, an investor can obtain an option position that will mimic a stock position almost identically, but at a huge cost savings.
- Less Risk, Depending on How You Use Them - There are situations in which buying options is riskier than owning equities, but there are also times when options can be used to reduce risk. It really depends on how you use them. Options can be less risky for investors because they require less financial commitment than equities, and they can also be less risky due to their relative imperviousness to the potentially catastrophic effects of gap openings.
- Higher Potential Returns - You don't need a calculator to figure out that if you spend much less money and make almost the same profit, you'll have a higher percentage return. When they pay off, that's what options typically offer to investors.
- More Strategic Alternatives - The final major advantage of options is that they offer more investment alternatives. Options are a very flexible tool. There are many ways to use options to recreate other positions. We call these positions synthetics.
- Flexibilty - For the most part, stock traders have two choices: long (bullish) or short (bearish). Conversely, options players have a wide variety of strategies at their disposal. Calls and puts can be combined in myriad different ways to profit from any type of price action: bullish, bearish, sideways, and anywhere in between. Seasoned speculators might ignore price action altogether, and instead use options to profit from dividend payouts or changes in implied volatility. Plus, options can be sold to generate income on existing stock positions, or to set the cost of entry on a planned share purchase. Rather than limiting yourself to the stark black-and-white palette of stock trading, you can use options to fine-tune your approach for any market environment.
Cons of Stock Option
- Lower liquidity - Many individual stock options don't have much volume at all. The fact that each optionable stock will have options trading at different strike prices and expirations means that the particular option you are trading will be very low volume unless it is one of the most popular stocks or stock indexes. This lower liquidity won't matter much to a small trader that is trading just 10 contracts though.
- Higher spreads - Options tend to have higher spreads because of the lack of liquidity. This means it will cost you more in indirect costs when doing an option trade because you will be giving up the spread when you trade.
- Higher commissions - Options trades will cost you more in commission per dollar invested. These commissions may be even higher for spreads where you have to pay commissions for both sides of the spread.
- Complicated - Options are very complicated to beginners. Most beginners, and even some advanced investors, think they understand them when they don't.
- Time Decay - When buying options you lose the time value of the options as you hold them. There are no exceptions to this rule.
- Less information - Options can be a pain when it is harder to get quotes or other standard analytical information like the implied volatility.
- Options not available for all stocks - Although options are available on a good number of stocks, this still limits the number of possibilities available to you.