Question

What are the advantages and disadvantages of trading options instead of equities? be detailed and include them all.

Answer 1

Advantages:

1. Options are contracts that give the holder the right to buy or sell an underlying asset. The holder need not possess the asset and he/she can still trade it. This is possible through options only. In case of equity, the stock must be held personally.

2. Options, provide hedge against risk but equity provides no hedge.

3. Options have an expiration date but equity has no expiration date.

4. Options provide increased cost efficiency but equity does not.

Disadvantages:

1. Options require good understanding of the market otherwise it may lead to losses.

2. Options are considered risky when compared to equity.