The stock market is a complex, volatile and fascinating industry for many reasons.
To work in this dynamic field, you must be sharp, agile-minded and extremely well-informed. You need a finger on the pulse of the market and a strong eye for detail.
As a member of the investment community, you can work in stock trading or options trading. This brings forth the question — are options better than stocks? Or vice versa? Both have their merits. While many potential finance professionals are more familiar with stock trading, options trading can be very rewarding as well.
In this post, we will direct your attention towards an equally lucrative domain called options trading. By comparing options trading vs stock trading, you can make a smart choice about which of the two is better suited for your career.
What’s Options Trading?
Let’s say an individual wants to invest in the stock market. What are his options?
Buy new stocks of a company.
Or sell his existing stocks.
For most people, those are the only two choices.
However, options trading offers a third alternative. So what is the difference between stocks and options?
Options trading is a flexible and lucrative system of investing where you buy or sell stocks at a specific cost within a specific frame of time. You can observe the stock performance and then decide whether to exercise the option to buy it or let it go.
You don’t have to pay the full price for the security, thereby lowering the risk of loss. But if the stock price rises, you stand to make a significant profit. Options trading gives you an added advantage in the form of leverage, which can increase your returns. Every day, there is a 50/50 chance that the stock value will rise or fall. You either make money or lose money. There is no surefire way to predict which way the dice will roll.
With options trading, you can create an effective strategy that increases your odds of gaining more returns. Instead of a 50 per cent chance of making money, you can tweak it to 70 or 80 per cent. You can predict a range of possibilities where the stock may stay still, rise or fall. Options trading helps you strategically predict different stock movements and reap high profits from the scenario. Some experts believe that options are better than stocks.
What are the benefits of options trading?
- You have the leverage to use lesser capital to make bigger profits
- Options protect your portfolio from market volatility
- You can wager on the direction of the stocks, whether up, down or staying in the same place
- You can make quick and easy transactions with options trading
- You can trade in currencies, stocks, interest rates and index products
Start learning Options Trading from real traders.
Now let’s understand stock trading
When you trade in stocks, you make small investments in a company. Active investors play the stock market, buying and selling stocks to make short-term gains. It can be a risky venture, given the nature of the markets. A focused and informed professional has the ability to make the right choices with fewer risks. A company’s stock can unpredictably rise and fall in the short term. Over the long term, some stocks stand the test of time. The main risk is, if the company shuts down, then the stock value will collapse.
There are different types of stock trading methods. Investors can indulge in day trading, where you buy or sell shares before the market closes for the day. Whereas with momentum trading, you can latch on to a high or low-functioning stock and follow the direction of its movement. Position trading requires you to hold on to your investments for long-term gains. Stock trading is now also available online, which makes it very accessible to the layman. Stock trading has always been extremely popular. However lately, many people have been wondering, are options better than stocks? There is no right or wrong answer here, but it does depend on your personal requirements.
What are the benefits of stock trading?
- Can play a major role in increasing the value of your portfolio
- Diversified stocks can enable you to save on taxes
- Helps you build your wealth over time
- Can liquidate your investments when you need capital
Options trading vs stock trading — a comparison chart
What is the main difference between stocks and options? Are options better than stocks?
Let’s take a closer look at the key points to truly understand their differences and merits.
|Options trading||Stock trading|
|You have the right to buy or sell stocks within a fixed time frame.||Buying stocks makes you a part owner of a company.|
|Offers fewer risks and larger control over your money.||Can be risky when dealing with market fluctuations and volatility.|
|Options have a limited shelf life. Once it reaches the expiry date, the value is determined.||The lifespan of the stocks in your portfolio is determined by the owner. You can sell quickly or keep the stocks for a longer period.|
|You don’t receive dividends on options.||You receive dividends on your stocks.|
|Is highly liquid, and can be exchanged for cash when the markets are open.||Is also highly liquid, and can be exchanged for cash when the markets are open.|
Options trading vs stock trading: Which one is better for you?
When are stocks better than options?
- You are highly proficient and experienced in investing in the stock market
- You are looking for long-term investments
- You are taking a long-term gamble on a volatile stock which will not hold much value as an options contract
- You don’t have the time to follow the stock closely (as required in options)
When are options better than stocks?
- You want to limit the risk of loss to a certain amount of cash
- You can buy specific stocks at lower prices
- There is a chance of getting a higher return with options if you play your cards right
- Options trading is less expensive than buying shares for those with limited funds
- You are aware of several trading strategies that help you maximise your returns when options trading
Proschool’s professional course on options trading
So are options better than stocks? The answer depends entirely on your perspective. If your answer to the above question is a resounding yes, you need a professional course to guide you. One of the most trusted institutions in India, IMS Proschool has recently launched a comprehensive program on options trading. This course deals with the technical and theoretical aspects of the stock markets and offers insights and skills that lead to experienced trading. It is a complete deep dive into the world of options trading and helps you understand the nitty-gritty of options trading.
Here are some of the course highlights:
- You learn to trade options on Sensibull for free.
- Trains you to take on several jobs profiles, such as dealer, broker, sales executive and risk manager.
- The certification can help you land a job with brokerage firms listed on the NSE.
- The syllabus includes capital markets, derivatives, option trading strategies and types of risks.
- The faculty includes experienced trading specialists who use active learning methodology to teach effectively.
- An important part of the course is the focus on hands-on training to develop technical skills using virtual trading applications.
- You can also attempt the NSIM Series 8 Certification on completion of the course.
- The placement program will help you learn proper recruitment etiquette and actively assist you with your job search.
In the battle of options trading vs stock trading, the only real winner is the shrewd investor. You need a certification in options training from a reputed institute to truly understand the nuances of this complex industry. You also receive technical training along with elevated analytical thinking skills. Once you’re certified, you are ready to successfully manipulate the markets and profit substantially from options trading.
Eager to start your journey as a qualified options trader? Find out more details here