After all, options traders inherently become stock investors if they exercise call options. Buying a put option will help mitigate potential losses if the value of a stock you own goes down. You can buy stocks, which represent shares of ownership in individual companies, or options, which let you bet on which direction you think a stock price is headed. You can set alerts through your online broker. Commission fees for stock trading vary, so shop around before opening an account. The more you trade, the higher your costs. Options trading requires you to learn a new vocabulary of terms like puts, calls and strike prices, which may lead you to believe these assets are riskier than stocks. Looking for a more tactical approach to investing, one with a smaller investment requirement and flexibility regarding timing or downside risks? That notion is overstated, especially because investors can let an option expire and incur no further financial obligation other than the premium paid and associated trading costs, says Wade Guenther, a portfolio manager at Horizons ETFs Management. Options may be up your alley.
Meanwhile, many stock traders use put options as a hedging mechanism. Another downside of options trading is the related costs, which generally are much higher than for stocks. The beauty of investing in stocks is simplicity: You buy a stock, betting its price will rise so you can sell at a higher price. The beauty of investing in stocks is simplicity: You buy a stock, betting its price will rise so you can sell at some point down the road at a higher price. Those who favor an active investment approach and love to watch the market may find options appealing. Beginner investors and those who prefer simplicity generally will stick to stocks for their straightforward nature. There should be a good appetite for investors to use options as a hedging tool.
