Benefits of Stock Options

Stock options are wonderful financial instrument and tool. Maybe you heard famous saying that options are risky. Sure it's true when you know nothing about them. I think that not enough knowledge is the only serious reason why not to trade options, because benefits of options trading can easily outweight any obstacles. This is list of some benefits.

• Leverage. One from the most important words in wealth creation. The basic definition of leverage is the ability to do more with less effort. How this applies to stock options? We can control more assets with less money. One option contract controls 100 shares. With fraction of cost we would pay for equivalent number of shares, we control and profit from change of price of all underlying shares.

• Big profits even in short time. Because options are very sensitive to the underlying stock's price movements and costs for buying options is low in comparison with shares, percentage returns can be very big.

• Profit even from declining stocks. Based on what strategy we will use we can profit in every situation. We can use puts when stock goes down or calls when stock goes up. We can even profit when stock goes sideways.

• Reducing or eliminating risk. Options can protect us from some unwanted scenarios when for example price movement of stock doesn't go in direction we would want. Also risk from point of amount of money we put to options trade is much less then with comparison with shares.