Trading stocks vs options. Which would you choose?

[nwoptions]

If you had to choose between trading stocks or trading stock options, which would you choose and why?

Is there any advantage in trading stocks?

I'm asking this question partly because I want trade options. I like the idea of using leverage. I want to trade bull put spreads for growth stocks. But the problem is that many bull put spreads have no volume/OI. Almost all the stocks on my watchlist have zero volume options at the strike prices I want.

I'm not sure what I should do. Any thoughts?

Thanks

 

[smallfil]

Options give you leverage which gives you larger winners percentage wise. On the flip side, options have expiration dates and you have to deal with time decay and if your stock consolidates and moves sideways, eats up the premium. Stocks are pretty straight forward to trade, add a stop loss to protect your position, easier to manage but, smaller returns percentage wise. I trade both since, options premiums can be very expensive at times, getting into the stock makes more sense at times. Having hard stop losses compared with mental stop losses for options, gives trading stocks one more plus. I only buy options, calls and puts and do not trade option spreads.

 

[stepandfetchit]

If you had to choose between trading stocks or trading stock options, which would you choose and why?

Is there any advantage in trading stocks?

I'm asking this question partly because I want trade options. I like the idea of using leverage. I want to trade bull put spreads for growth stocks. But the problem is that many bull put spreads have no volume/OI. Almost all the stocks on my watchlist have zero volume options at the strike prices I want.

I'm not sure what I should do. Any thoughts?

Thanks

Advantage to trading stocks: (All these assuming your bullish entry will wise and profitable)
1) You do not have to nail down the time frame to meet your target price.
2) You may ignore implied volatility.
3) You may set very loose price targets and still do OK.

However, when trading Options, you need to understand your time frame, as you need to chose options which will not expire before meeting your exit target. If your time frame is not very clear, you may be forced to pick an expiration much longer to give some wiggle room for your trade to work.
You need to consider what the implied volatility may be at the time of your target exit. This can influence the option strategy and may impact the strike choice.

Regarding liquidity... Consider the expected liquidity at the time you would want to exit the trade as a filter to your choices. IE at exit target, if your options will be DIM, you may want to consider an alternate choice. On entry, insure the OI is > your proposed position (some desire this to be 20 X their size). For entry, volume is preferred, but not necessary. Also, get familiar with each products options to better understand their liquidity.

If you have an example of underlying, expected price movement, and time frame, post here or privately and it could percolate some ideas.

 

[ironchef]

Advantage to trading stocks: (All these assuming your bullish entry will wise and profitable)
1) You do not have to nail down the time frame to meet your target price.
2) You may ignore implied volatility.
3) You may set very loose price targets and still do OK.

But unless you day trade you should still look at IV, as a guide to the market's view of potential future movement of your trade.

 

[ironchef]

We trade options not because of leverage. There are many other ways to get leverage. We trade because we love convexity.

 

[stepandfetchit]

We trade options not because of leverage. There are many other ways to get leverage. We trade because we love convexity.

For directional trading: I prefer using options primarily for their leverage.
So, I am not a member of your first "We .."!

 

[taowave]

I sound like a broken record,but FWIW, check out Orats or any other option backtester,and see for yourself if trading options has superior performance /risk reward metrics vs the underlying over your chosen time frame..

Make sure you compare apples to apples....

Until you do that,you are pissing in the wind..Case in point,why do you want to trade bull put spreads? Based off what???

If you had to choose between trading stocks or trading stock options, which would you choose and why?

Is there any advantage in trading stocks?

I'm asking this question partly because I want trade options. I like the idea of using leverage. I want to trade bull put spreads for growth stocks. But the problem is that many bull put spreads have no volume/OI. Almost all the stocks on my watchlist have zero volume options at the strike prices I want.

I'm not sure what I should do. Any thoughts?

Thanks

 

[JSOP]

If you had to choose between trading stocks or trading stock options, which would you choose and why?

Is there any advantage in trading stocks?

I'm asking this question partly because I want trade options. I like the idea of using leverage. I want to trade bull put spreads for growth stocks. But the problem is that many bull put spreads have no volume/OI. Almost all the stocks on my watchlist have zero volume options at the strike prices I want.

I'm not sure what I should do. Any thoughts?

Thanks

Depending on your capital situation and the circumstances under which you are trading. Stocks are more for long-term trading without any extreme volatility in either direction and when you are relatively well-capitalized whereas options allow you to take a position with relatively less capital invested and be able to control risk better in a specific time-frame when there possibilities of extreme volatility in either direction i.e. earnings time.

 

[JSOP]

But unless you day trade you should still look at IV, as a guide to the market's view of potential future movement of your trade.

I tend to look at these with a grain of salt as they change when the stock movement changes so at the end it doesn't really tell you anything.

 

[BlacknBlue]

Options obviously.