Stocks are cool. Options are cooler. Here's why. // Options 101 Options Basics Options for Beginners
welcome to looking at the markets with David Moadel
today we're going to talk about how stocks are boring and options are cool
that you want to know why
well here's why let's talk about it
advantages of stocks and I put a question mark after that because i'm not
sure if these advantages of stocks are really such great advantages
well you can hold stocks for as long as you want
even years or decades unlike options
stocks have no expiration date well that's true but you can buy long-term
options - well it's also true that stocks are easier to understand than
options with stocks
you don't have to learn about theta delta gamma and so on but you can learn
about these things
so you don't have to let all of that stuff
the theta Delta Gamma you don't have to let that be an obstacle if you're
willing to learn about it
it's easier to get permission from a broker to trade stocks and options
sure but you can usually find a broker who will give you permission to trade
options
all right and there are a lot of brokers I out a lot of brokers out there and if
you shop around
UK you you could probably find somebody who will give you options permission
now some traders lose a lot of money quickly by putting too much of their
money into an options trade right
true but it's also true
that stock traders can lose a lot of money quickly especially if they're
buying penny stocks or leveraged etfs etc so sure people have lost a lot of
money or even all of their money by trading options and by you know taking
on very large trades but you can also lose all of your money through stocks by
putting way too much money into your trades as well
well what about the advantages of options
I think there are quite a few of them and here's a cartoon
this is a an old ziggy cartoon
stock options fifty cents okay well they may not be fifty cents necessarily but I
put that there
because stock options are generally speaking much less expensive than stocks
so the advantages of options while stocks tend to tie up a lot of capital
options on the other hand
typically don't another advantage is that options usually provide leverage
that you just won't get with stocks
most of the time so traders with small accounts can enjoy decent profits
just like traders with big accounts can options offer more possible strategies
than stocks for example with options you can sell puts and calls you can create
spreads you can use straddle and strangles etc these are things that you
cannot really do with just stocks with options you can profit if the market
goes up or down or sideways
you can even profit without knowing which directional Gulf
so even if you don't know where
the markets going to go or where stocks going to go even if you don't want to
try to predict whether it's going to go up or down
you can still profit off of that with options and if you already own a stock
you can use options to protect yourself from a market crash
for example if you buy protective puts you can also use options to earn extra
income from the stock that you already own
so for example if you own stock shares of stock and you you sell covered calls
against that stock you can make extra income from any stock that you already
have
now in my opinion
options are better than stocks if there is a market crash and i'll give you a
very simplified example
okay and don't expect these numbers to to be exactly like this if there is a
market crash but this is just an example of what could happen
let's say you have a hundred thousand dollars in your in your account
well you could put all of it in two blue chip stocks the kinds you would see in
the S&P 500 or you could put ten percent of it into options representing those
stocks now what if the market crashes fifty percent like it did in the year
two thousand and again in two thousand eight and of course it could happen
again
if you owned the stocks your account would be cut in half
- 50 thousand dollars remember you started with a hundred thousand dollars
so now you have fifty thousand dollars worth of stock
it could recover eventually but that could take years
on the other hand if you owned the options instead of the stocks
your account would be reduced if there's a crash
only by ten percent you would still have ninety thousand dollars in your account
not too bad right a lot better than going down to fifty thousand dollars and
you could use that money
the ninety thousand dollars to buy stocks or options at a deep discount if
you want it to or you could just keep the ninety thousand cash but if a market
crash did happen
and even if you lost ten percent of your account
it wouldn't be the end of the world and furthermore you could take the ninety
percent of your account that's that's intact and after the crash
you could buy stocks or options very cheaply and you could make your money
back
probably pretty easily when the market recovers and in my opinion
options are the best choice for small accounts and a lot of people come to me
with questions about small accounts
now let's say then this is just a very simplified example let's say you have
ten thousand dollars in your trading account and by the way you don't need
that much to start you can start with a lot less than that but let's say you
you have ten thousand dollars in your account what can you do
well you could buy ten thousand dollars worth of blue-chip SMP 500 stocks and
you might earn let's say eight hundred dollars or maybe a thousand dollars in a
year
ok so that would be about eight to ten percent
well eight hundred dollars are a thousand dollars in a whole year
that's not really much in it I mean it's not anything to write home about
to be honest or you could use options to earn the same profits as someone with
hundreds of thousands of dollars in their trading account
because options are leveraged you can control large amounts of stock with a
small amount of money
so what's the takeaway
well stocks are fine for some situations but if you're not taking advantage of
options then I believe you're missing out on a wide variety of important
trading and investing strategies and if you'd like more help with this
if you want to learn more about options stocks or finance in general or
investing
well you can contact me anytime my email address is David Modell @ gmail.com and
by the way feel free to leave comments or give me a thumbs up for the video if
you liked it
I'm very glad to help you and i hope to hear from you soon
yeah