Options trading is a lucrative venture that new traders and experienced traders can take in. It might be a good way to earn money online but it is also known as the trickiest especially when picking the right strike price and contract price.
To be able to put a price on an option correctly, you need to determine the implied volatility, the current stock price, the interest rate, the time to expiration, the strike price, and the cash dividends. Options altogether are priced based on the probability model. This is one of the major differences between stock trading and options trading. Stock trading gives you odds of 50/50. But with options trading, it’s totally different. Options trading allows you to open trades that have the highest probability of winning especially if you use MetaTrader 5 as your trading platform.
Everything is so good and smooth sailing, but what’s the catch? It appears that the higher the probability to attain success, the lower the payout tends to be. You might start thinking if there are real people who are willing to take on a trade that won’t pay well. Yes, there are actually people who are after the pay no matter how small it is. The fact that it pays is already enough for them.
What is a Strike Price?
The strike price is the amount at which you can buy or sell a derivative contract, and whether you exercise an option or not. Strike prices are therefore fixed together with the options contract.
Advantages of Options Trading
There are four main advantages of Options trading – it has increased cost-efficiency, they are less risky compared to equities, they are potentially beneficial in delivering a higher percentage of returns and lastly, they offer a good number of strategic alternatives.
With great leveraging power, options traders are able to obtain positions the same as with stock positions. But options trading offers high-cost savings. For instance, to be able to buy 200 shares out of an $80 stock, the investor has to invest $16,000. This can be costly for retail investors.
There are times when buying options offer more risk than when you own equities and there are also times when the use of options offers reduced risk. What’s important here is that you know how to use options properly. Since options have less financial commitment compared to equities, they offer less risk and eventually great for new traders who are still trying to get used to the market condition.
Chance of Higher Returns
With options trading, you won’t have to get a calculator to be able to know if you spent more or spent less because definitely, you will get a high percentage return. That’s very much an advantage that investors are being offered.
Offers More Strategic Alternatives
The last major advantage of options trading is that it is composed of very flexible tools. You can use options in recreating other trading positions. This is called position synthetics. One of the major considerations that you need here is to choose a reliable trading platform to do options trading and nothing works as well as MetaTrader 5.