Today we will be talking about the advantages and disadvantages of options.
Even though many of you already have experience trading options, it is still good to know if there is any other way to utilize options trading to your advantage.
The advantages of options mainly include two parts:
Part 1. Earning potential returns
Generally, there are two ways to Earning potential returns trading options.
Firstly, options can act as a leverage, it helps you to potentially gain with a relatively small amount of money invested.
Secondly, options may provide potential stream of income.
Part 2. Hedging risk
In options trading, we can utilize options combination, which is also called the options strategy, to control or lower the amount of risk we are taking on.
Options strategies will be introduced in detail later.
The disadvantages of options
The buyer of options can lose 100% of their investment, and the seller of the option can lose up to all the money they have in their account.
However, if I am the seller of the option, this will not be the case.
As the stock price swings up and down, my margin will be affected, and once my account balance is lower than the margin needed, I will be receiving a margin call.
And if I am unable to add funds to maintain our margin level, I will suffer a margin closeout.
