Options Trading Tutorial

question about option trading?

by trading options do you get a better return on your money than with trading stocks. I thought about trading options I just dont if the returns would better to make it worth while trying to learn option trading.

Public Comments

1. Technically you can make money on options whether a stock moves up down or sideways. Options can be VERY confusing to someone who doesn't have a background in it. To answer your question I guess I would say yes, only because there are so many different "plays" you can do with options. I would recommend reading up on the fundamentals before even thinking about trading options. Start simple with some basic covered calls/puts to get the feel and the concept. Hope this helps, and good luck!
2. The whole point of an option is to leverage greater returns. An option is a geared product. Unfortunately the downside is that losses can be exagerated as well. Put it this way: Buy 100 shares of xyz at $1 = $100 Buy 1 option contract (for 100 xyz shares) for $10 Shares double. Stock profit =$100 (100%) Option goes to $100 = $90 profit (900%)
3. Answer 1: It is certainly possible to an options trade to get a better return than a stock trade, but it is also possible for a stock trade to get a better return than a options trade. Options allow you to choose how much risk you are taking. If you choose to take more risk, you can make higher profits or losses. If you choose to take less risk, you will usually make smaller profits and losses. Answer 2: Options are what is called a "zero sum game." That means for every dollar one person makes on an options trade someone else loses a dollar. That means the average return from an options trade is zero before expenses, and less than zero after you account for expenses such as commissions. Stocks are not a zero sum game. There are always at least as many long positions as short positions, so when the price of a stock goes up there are more profits created than losses. That means the average return on stocks is greater than zero, while the average return on options is less than zero. So, on the average, investors get a better return trading stocks than options. There are, of course, exceptions. You should also be aware there are a lot of options traders who also take positions in the stocks underlying the options to control the risks associated with options. Answer 3: Option prices are generally more volatile than stock prices when measured in percentages. That means successful options traders often do get a better return, while unseccessful options traders often have huge percentge losses. ----- All three answers are correct.
4. yes, because options are cheaper, but remember that options have expiration date.