Stocks vs. Options: Choosing the Right Time to Buy Each

Forexlive2022-07-20

Each performs better in certain situations...Stocks and options may have some similarities, but they are two different types of investment, especially when it comes to their risk-reward potential.And ...

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Jess261
2022-07-21
Jess261
Okay
mohjoejoejoe
2022-07-21
mohjoejoejoe
Ok
Tan79
2022-07-21
Tan79
Thanks for sharing
Vincent1968
2022-07-21
Vincent1968
Follow
AngelaChan
2022-07-21
AngelaChan
Interesting
Wafu
2022-07-21
Wafu
Ok

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You can only start choosing options and placing orders to trade them once you receive the approval. In addition, you would need a margin account and considerable capital to qualify for options trading.That’s why mutual funds or exchange-traded funds (ETFs) consisting of various stocks make a better choice than options, particularly with beginner and even some intermediate investors.You’d Rather Not Follow the MarketStocks need to be monitored from time to time, although the amount of time you need to keep an eye on them is usually less than what is required by options, which have set expiration dates.They’re VolatileIt can be pretty easy for options to be out of the money (OTM) and expire worthless if you’re rooting for a particular stock that’s quite volatile. Investing in stocks can provide you with a permanent stake, but you need to survive the ups and downs, and that’s often unlikely to happen with options.You’re Aiming Long-TermStocks typically make significant gains in the long run, although the journey ahead will not be smooth sailing. That said, options’ short-term nature is more against your favor during tough times in the market since they can expire before stock prices start taking the optimistic route again.Choose options when…You Seek Higher ReturnsLike stocks, options offer a high-reward potential. Still, keep in mind that such a benefit also carries a serious risk with it. While options could amplify your potential returns twofold, threefold, or even more, you’re risking losing a lot. And that could happen in the span of a few weeks or months.So if you plan to buy options, make sure you are in a financial position where losses from trading options can be managed and will not easily drag your capital down should your trade goes wrong.You’re Looking to Earn an IncomeSome investors sell call options against their stock positions or write put options to generate income. These strategies provide a good and pretty low-risk way to trade options.You Want Buy Stocks at a DiscountUsing options to purchase stocks can help you hold shares at a discount. 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