by The Basics of Index Options
Index Options vs Stock Options how?, you might ask? The beauty of options is that they allow you to go long or short an index. With index options, you can either go long an index to gain above-average profits, or you can go short an index to lose below-average profits.
Let’s say you choose the average return of the S&P 500 Index in January of 2019 to be 7.50%, which is a rather modest expectation. In fact, there is a rather good chance that you will do better than the S&P 500 by at least 100%.
If that is the case, you can either take the 100% profit or, if you prefer, you can take the 7.50% loss and realize a 4.00% gain, resulting in an overall net profit. The options also allow you to go long or short the Dow Jones by buying or selling the daily index.
The Basics of Stock Options
A stock option allows you to buy or sell the company’s stock at a fixed price. Depending on the kind of stock options you are getting, it can be either a call option or a put option.
Stock options can be traded on a exchange such as NASDAQ stock options, Options Clearing Corporation, E*Trade stock options, and American Stock Exchange stock options.
Index Options vs Stock Options: The Difference between Index Options vs Stock Options, Stocks has all the basic features of options contracts, which include: If the stock price goes up, you get the right to buy or sell the stock at a predetermined price (called the strike price). If the stock price goes down, you get the right to buy or sell the stock at a predetermined price (called the put strike).
Index Options vs. Stock Options: Which is More Profitable?
In conclusion, day trading index options vs stock options are really identical and equally profitable as long as your outlook is correct. When stocks and indices go up or down exactly as you expect them to, there’s no way you can not make money.
Trading Index Options
Unlike stock options, trading index options don’t require you to own the underlying instrument of the underlying index. There are always deals to be made in the market. It’s all about the profit. What is so great about trading index options is the simplicity of the entire trading process.
It’s easy and cheap to use as well. You don’t need to be a stockbroker to trade. Just go online, follow a few basic steps, and boom! You have made your first money in the stock market.
How Many Days Should I Trade My Options? One of the primary reasons to trade index options is that you can set the contract period that fits your financial goals. In short, you can start with a small number of days for your first trade and gradually go for a higher number of days as you begin to profit.
Trading Stock Options
Stock options are traded similar to index options, however, they differ in many ways, particularly when it comes to price limits and expiration. Both types of stock options are trades that are called as strike calls and put options.
An example of stock option would be an option where you give a certain amount of money for a certain amount of time to the options commission company for them to buy or sell the stock at a certain price at the specified time.
On the other hand, an example of a put option would be an option where you put your money to the company and they pay you in the event of the stock going below your given strike price.
Why Trading Index Options is More Profitable
High Fees At the moment, the high cost of trading index options is one of the key reasons why people are choosing stock options over options. Stock options usually have higher commissions but if your mindset is correct and you keep the same set of assumptions as before the start of the trade, trading with stock options is very profitable.
Low Volatility In the last 12 months, the major stock indices like S&P 500, Dow Jones, and Nasdaq have shown a tremendous average return, which means that stocks are more and more expensive, and low volatility. As you can see below, S&P 500 has traded from 2,100 to 1,760 in a little over one year, while Dow Jones has gone from 10,000 to 20,000, and Nasdaq has gone from 6,600 to 7,300.
Conclusion
Trading index options vs stock options both have the same profits with the following key points in my opinion. They both have unlimited profit potential You get unlimited profit potential with both options and stocks Trade on the rise or the fall of the indices and get unlimited profits You have unlimited profits with both options and stocks.
The only difference is the timing as stock option profits come only as long as the stock is trading in the profitable range and is going up and down only as long as the demand of the stock goes up.
You can’t wait for a stock to go up and trade in the high-demand range to make money because that is just not going to happen as the longer you wait the more time you give your position to lose.
One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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