QuantWheel
Sign In

Why Trade Options? 5 advantages over buying stocks

Options offer a great add-on to stocks in your portoflio - In this article you can see what is possible with them.

    Highlights
  • Options give you more leverage - pay less to earn more if you think a stock will move.
  • Options give you flexibility - earn if the stock doesn't move, rises or falls.
  • Options can be used for protection of the stocks you already own.
  • Options can be used as additional income - sell options to earn 1-2% monthly.

Why trade options instead of just buying shares of stock?

  1. Leverage – options, out of many other advantages, give you leverage that regular stocks just can’t match.
    With one option trade, instead of dropping $5,000 on a stock for 100 shares at $50 each, you might just pay $200 for a call option and still control the same 100 shares.
    If the stock goes your way, your percentage gains can be way bigger than simply owning shares. You get exposed to the stock upside for much lower initial investment.
    Welcome to the big boys table.

  2. Flexibility – Options offer flexibility for your trading.
    You can make money if stocks rise, fall, or even stay flat, depending on how you set up calls and puts.
  3. Loss protection – Shielding from the losses, in options terms – hedging, gets easier with options.
    Put options act kind of like insurance for your stocks. It’s hard to do that elsewhere.
  4. Variety – You’ve got variety in how you play the market.
    Options let you trade on volatility, time decay, and price movement all at once—pretty cool, honestly.
    Like being able to play all positions in basketball, you just have to pick what suits you the best.
  5. More income – For folks looking to earn more from their portfolio of stock positions, options provide income through covered calls or protection through puts.

 

Why Do Options Exist?

Options exist because they solve what classic trading can’t: asymmetric risk.​

What does that mean?
With leverage or classic trading in general, the good and bad scenarios are symmetrical—you make 5x or lose 5x.
With options, you make 3x but can only lose 1x.​

This is the entire purpose of options.

  •  You get the upside of leverage without the downside of forced liquidation.
  • More control and flexibility

This is appealing and it works if you’re buying options.

In short, options in general give people flexibility to protect, profit, or generate income with stocks in ways that aren’t possible by just buying or selling the shares of stocks.
They are an “add-on” to stocks.

Risk Management is a big reason options came about.
You can protect your investments from big losses.
If you own stocks, you can buy puts to limit how much you might lose.

Leverage lets you control more assets with less money.
You can buy an option for way less than the actual stock.
This gives you exposure to price moves without paying full price for the underlying asset.

Income Generation is another major use.
You can sell options and collect premium payments.
Plenty of investors use this to earn extra money from shares they already have.

Options offer flexibility that stocks just don’t.
You can profit in almost any market.
Different types of option strategies let you customize your approach.

Market Efficiency improves when options add liquidity.
More trading keeps prices fair.

Hedging protects businesses from wild price swings.
Companies use options to lock in costs for materials, which helps them plan and avoid nasty surprises.

Options come with expiration dates, which adds urgency and keeps trading lively.
You can tailor the characteristics of each options contract to fit your needs and timeframes.

Options trading gives you some solid advantages over just buying stocks. With leverage, you control more shares for less money, so a smaller investment can potentially lead to bigger gains.

Limited risk is a big plus for option buyers. The most you can lose is the premium you paid. Knowing your max loss in advance helps you manage risk better than with some other strategies.

Options can generate income through covered calls. If you already own stocks, you can sell calls against them and earn extra cash—kind of like a bonus on top of dividends.

Flexibility is another huge perk. You can potentially profit whether markets are rising, falling, or just sitting still. There are strategies for almost any market mood or personal outlook.

Options also protect your existing investments. Put options act like insurance, limiting your losses if stock prices take a dive.

Time decay is a big risk for option buyers. Options lose value as time passes, even if the stock price doesn’t budge. You can be right about direction and still lose money because you didn’t time it correctly – frustrating, right?
For options sellers, time decay works in their favor.
Time decay is just a fancy term for time passing by and the value of option changing with time, you can learn later on more in detail about this.

Leverage cuts both ways. It can boost your gains but also magnifies your losses. A small move against you can wipe out your premium pretty fast. But, it’s still much less than classic leverage trading in Forex or Crypto.

Complexity can trip up new traders. Some strategies have a lot of moving parts and can get confusing. It’s best to stick with selling calls and puts on lower priced stocks to get the feel.

Options can expire worthless, meaning that you didn’t hit the timing or targeted price just right.
This is bad for option buyers but good for option seller.

You can find out more about these roles here.

Margin requirements and fees add extra costs. Some strategies need more cash in your account, and trading fees can eat into profits, especially on smaller trades.

Picking the right strategy is key. Buying calls works when stocks rise above your strike price plus the premium.
Buying puts pays off when stocks drop below your strike price minus what you paid.

Income strategies like covered calls can deliver steady profits.
They work best with stocks that don’t move much or rise slowly, since you keep the premium no matter what happens with small moves.

Volatility really changes the game.
High volatility makes options more valuable, which helps sellers collect bigger premiums.
Low volatility means buyers get cheaper options.

Experience and knowledge help a ton.
The more you understand how options behave in different markets, the better your strategy choices.
Paper trading is a great way to practice without risking real money.

In short – you just have to pick the right tool for the job.

First things first—your broker needs to approve you for options trading.
That usually means filling out an application about your financial background and experience.
Most brokers size you up and then assign an approval level that matches what you know (or at least what you claim to know).

Before you ever place a trade, take some time to learn the basics.
Calls, puts, strike prices, expiration dates—yeah, it’s a lot, but you’ll need to know this stuff.
Understanding how options get priced? That’s a game-changer for making smarter decisions.

Honestly, you should try paper trading before you risk real money.
Most brokers have a simulator where you can mess around with fake cash in live market conditions.
It’s a pretty low-stress way to build skills and see what works (or doesn’t).

Stick to simple strategies at first, like buying calls or puts or just selling calls and puts.
There’s no need to dive into complicated trades before you’re comfortable with the basics.
Our tool makes this very easy because you can learn faster by seeing what is a good deal and what’s not, simple as that.

Only use money you’re completely fine with losing. Options can expire worthless, and that stings, so don’t risk cash you need for anything important. Start small, learn as you go, and don’t let FOMO push you into bigger bets too soon.

One last thing: check out your broker’s fees and the tools they offer.
Some charge per contract, others use flat rates—those costs add up.
Good research tools and flexible order types can really help, so don’t overlook them.