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#48 - Why Trade Options vs. Trading Stocks? Here's 5 Great Reasons: Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. On today’s daily call, we’re going to give you five great reasons why you should trade options versus trading stocks. I think this is actually very easy for me to...

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Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. On today’s daily call, we’re going to give you five great reasons why you should trade options versus trading stocks. I think this is actually very easy for me to explain, but if you’re new to options trading or if you are trading stock right now and you’re considering trading options, this might be great for you. My top five reasons are the following. Number one is that options give us non-directional trading. Probably the biggest one for me is this ability to trade markets in any direction. I think people actually are surprised when they get started trading options, that they realize that they don’t always have to be long a security, meaning the only way they know how to trade or the only way most people know how to invest is to buy things. You buy this stock. You buy that stock. You buy the indexes. All you can do is buy. But the reality is that you can sell and go short things and you can go bearish on some things and you can go bullish on other things. This ability to be non-directional gives us a lot of flexibility, AKA options (no pun intended) on making money in different market directions. It removes the barrier to generate income when markets are flat or when markets go down which is a huge advantage that traders have over traditional stock investors. Number two for me is this concept of range trading. Again, with stock trading, all you can do is you can buy and you are now fixed at your investment being that line in the sand of where you bought the stock. If you buy Apple stock at whatever price, say… I don’t know what Apple stock is right now, I’m not looking at it, but it’s like $200. You buy Apple stock at $200. If Apple stock goes to $199, you lost money. There’s no distinction. There’s no range that you can make money in unless it’s above $200. That obviously presents its own challenges because there’s a 50/50 shot of Apple going up or down. With options, you can build out strategies that allow you to trade a range. You can build out a strategy that says, “Look. If Apple is trading at $200, I want to profit as long as Apple stays between $180 and $220.” You don’t really care where it goes. If it goes to $205, $195, it doesn’t really matter. As long as it stays between $180 and $220, you make money. That ability to trade a range versus just trading directionally is again, a huge benefit to trading options. Number three is capital exposure. With options trading, you have the ability to do defined risk strategies and control your capital exposure. With stocks, stock is very capital intensive. It requires a lot of shares to actually move the needle a lot in your account. You have to purchase a lot of shares. When you purchase a lot of shares of a stock, you take on a lot of risk. With options, you can basically mimic a stock position with a quarter of the amount of risk or even less sometimes. That’s not saying that you should always be long options and replicate every single option strategy like stock, but I’m saying that stock right now is incredibly inefficient if you want to generate income in your account. I’m not saying there’s no place for it. You could definitely trade stock if you want to. I don’t. I think stock is totally inefficient. I think it exposes too much of your capital to directional moves in the market. I think you can do way better with just options. Number four is that options trading allows for quick adjustments. The only adjustment that you can ever do to a stock position if you don’t use options is to sell out of it. Think about it. If you’re only trading stocks and you are long a stock and you want to adjust your position, what are you going to do? Are you going to buy more stock? That only is going to get you more long if the stock is falling. The only adjustment choice that you have… There’s a one way exit to just selling out the position. There’s no ability to maneuver around it, to sell premium around

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