Options are able advance tools. They acquiesce you to accumulation from ascent stocks or from falling stocks by an absurd bulk if you are right, but they additionally appear with the accident of accepting you lose an absurd bulk if you are wrong.
Let’s attending at an example. Say we acquisition banal XYZ trading at $56. We accept that this banal is activity to go up in the abbreviate appellation so we could either shop for the stock, or we could shop for the alarm advantage on the stock.
Both means could potentially be actual profitable, but affairs the advantage has a abundant college profitability.
We could chose to shop for the stock at $56 and as the banal goes up we accomplish money. So if the banal goes up to $64 we would accomplish $8 on the barter or 14.28%, which is good, aloof not as acceptable of a acknowledgment as we
would accept liked.
Instead of affairs the banal at $56 say we shop for the $55 alarm for $3. If the banal goes up the $64 the alarm would be account at atomic $9 which would beggarly that we would accomplish at atomic a 200% acknowledgment on the advantage on the aforementioned move. Now wouldn’t you rather accept a 200% move again a 14.28% return? I would.
Now I apperceive what you are thinking, “aren’t options risky” and “can’t you lose the absolute bulk you advance in them”. Well the simple acknowledgment is yes, but all investments accept some array of risk. You are bluffing yourself if you shop for a stock and do not accept it is a chancy endeavor.
Besides, accident can be managed through things such as position sizing, and stop losses. All and all options, if advised accurately accept the abeyant to abundantly access your accumulation abeyant in the market.