In this article, you’ll find 6 reasons that make options trading so beneficial. Many experienced traders and institutions primarily trade options because they know the salient features of this financial instrument.
#1 Time is money
There are two ways to trade options. One is to buy options and this is also called “long”, while the other way is to sell options, which is known as “short”. If you sell options and is thus a so-called writer, then you can enjoy the premium income. This premium income is composed of the intrinsic value and the time value. The intrinsic value is easily determined, as it represents the difference between the current value and the selected strike. How the exact calculation made should not be the focus here. Let’s focus on the word “time value”.
As a seller of an option, you get money when time goes by, or in other words, time is money.
The buyer of an option pays that time value and does not get it back, so for the buyer – time costs money, he will lose more and more money if the underlying does not move in the right direction.
For this and other reasons, it is very advantageous to be on the seller side in options trading.
#2 Simple decisions
In options trading, many decisions are very simple and many of these decisions can be made in an objective way by using mathematics and statistics or probability theory. So if you love numbers, you will sooner or later end up in options trading.
You can make decisions based on various key figures that are always available to you. One of the commonly used key figures by options traders are the “Greeks”.The Greeks are being used to evaluate option positions and to determine option sensitivity. The name actually comes from the Greek alphabet and in options trading have a very specific significance.
Of course, you do not have to be a math genius to succeed in options trading because there are plenty of easy strategies.
#3 High hit rate
The hit rate in options trading, especially in sell option, is exceptionally high. Those who follow a trend following strategy in ordinary trading will in most cases have a hit rate around 30%, i. 70% of trades end in a loss, which can often lead to mental difficulties.