Why trade options?

E*TRADE Securities

02/28/19

Four main reasons investors use options in their portfolios

There are four main reasons investors use options strategies in their portfolios: flexibility, leverage, hedging, and income generation.

One of the biggest reasons some investors trade options is to produce income. Much like a dividend on a stock, options can be used to help generate an income stream. There are options strategies that let you collect money on your existing or future stock positions.

You can trade options in the most common types of accounts, including your brokerage account, certain types of retirement accounts, and even your IRA. The next time you’re thinking about trading stocks, don’t forget about these four big reasons people use options.

What to read next...

Take a look at three common mistakes options traders make: setting unrealistic price expectations, buying too little time, and buying more options than are appropriate for a given objective.

An understanding of “the Greeks” can be useful to any options trader. In a nutshell, options Greeks are statistical values that measure different types of risk, such as time, volatility, and price movement. Though you don’t necessarily need to use the Greeks in order to trade options, they can be very helpful in measuring and understanding certain risks.

Options are powerful tools that can be used by investors in different ways, and there is a relatively simple options strategy that can benefit buy-and-hold stock investors.

Looking to expand your financial knowledge?