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.

Perhaps most essential to options traders is the necessary understanding of “the Greeks”. In a nutshell, Greeks as they relate to options trading, are defined as different types of risks—such as time, volatility, and price changes—associated with various positions, each one represented by a certain letter in the Greek alphabet.

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.

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