Stock Options Guide

Updated: Jun 11

If you are interested in leveraging your cash, you may want to check out Stock Options. Options allow you to control more shares of stock than the traditional way of buying and selling a stock.

Options trading may seem overwhelming at first, but it's easy to understand if you know a few key points. Investor portfolios are usually constructed with several asset classes. These may be stocks, bonds, ETFs, and even mutual funds. Options are another asset class, and when used correctly, they offer many advantages that trading stocks and ETFs alone cannot.

We've put together 2 options resources for you to get started.

Resource #1

The first resource is Investopedia and you can find their online Options Trading Guide Here

Resource #2

The second resource is from Options Made Easy, you can find their book below:

Stock Options Guide
Download PDF • 11.31MB


Advantages of Options Trading:

There are many advantages of trading options over the future and cash. There are several advantages are given below-

Cost Efficient:

Options come up with huge leveraging power. A trader or investor can get options position equal to a stock position at a much lower margin. For example, in order to purchase 200 shares of a stock at price 80, an investor requires paying Rs. 16000. However, if he was to purchase call options of equal weightage, the premium required would be around Rs 4000. So we can have a fair idea of options cost efficiency.

High Return Potential:

The returns on options trading would be much higher than buying shares on cash. As such, the option pays equal profit as the simple stock buying if had chosen the right strike. As we are getting options on lower margin and getting the same profitability the percentage return would be much higher comparatively.

Lower Risk:

Options are riskier than owning equities however; there are also times when options are used to avoid risk. Options are used widely to hedge the positions. The risk in options is predefined as the maximum loss can be the premium paid to buy the option.

More Strategies Available:

There are more strategies available in the options market to trade options. The trades can be combined to create a strategic position with the help of a call and put options of different expiries and strike prices.