Pros and Cons of Trading Options
Trading has its benefits and its drawbacks. The amount of screen time, memorization, and practice needed to become a profitable trader varies greatly among beginners who wish to learn how to trade. The risks are extremely high, and the value of the contracts are very volatile.
In the world of options trading, the trader (you) have to be right about 2 things: the amount of time it will take for the stock price to move in your direction, and which direction the stock price will move in (up or down). There are other options trading strategies out there such as the iron condor, the vertical spread, the credit spread, the straddle, the strangle, and much more. I don’t use any of those strategies. I Only Buy Naked Calls And Naked Puts.
PROS
- Options trading allows you to make money in both directions.
- Short selling stocks has a maximum ROI of 100% per trade (if the stock falls to zero), but buying put options on the stock has unlimited upside potential (>100%).
- Growing a tiny account (<50$) into thousands of dollars is a real possibility when you know what you’re doing.
- Long-term investors could buy option contracts with a 1-, 2-, or 3-year expiration on a reputable company and make more money than buying the stock itself if the stock price move in your favor before the expiration date.
CONS
- You can lose ALL of you money very quickly if and when you are wrong.
- If you short sell a contract, and the stock price moves against you, you expose yourself to UNLIMITED LOSSES (more than the money you put in to make the trade)
- Option Contracts are subjected to time decay. If the price of the stock does not move in your direction fast enough, the value of your Out-Of-The-Money contracts will rapidly approach $0.00.
- If you gamble your way through options trading, you will lose EVERYTHING.
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