Читать книгу Options for everybody - Stefan Deutschmann - Страница 9

Now let's talk about the differences between stock trading and options trading. However, one thing must be clear from the outset. In no way am I going to try to denunciate stock trading here. This type of investment has its raison d'être and I also hold various stocks for various reasons. So there is no reason to demonise stocks. Nevertheless, I am of the opinion that trading options - bad wordplay - offers more options, more opportunities and less risk than trading stocks. However, this statement is only partially correct. Many will now argue with the danger arising from the leverage effect. Let's look at the whole thing together and then you can form your own opinion.

With options we have the possibility to use the leverage to our advantage - but it still holds a certain danger. The leverage effect can work for and against us, but if you are able to understand the mechanics behind it, levers are a great tool - not just in crafts. However, one of the most important advantages of option trading is exactly that - in leverage - because you can use it to increase your return and reduce your risk at the same time. Nevertheless, caution is advised. A hasty action transforms these advantages into disadvantages. However, we will discuss all this in detail. Another advantage of options over stocks is the following. If you trade stocks, you have only a very limited choice of options - you can buy or sell stocks (short selling not necessarily included). When you trade options, you have a huge toolbox from which you can serve yourself. This gives you the ability to create a strategy that exactly matches your assumptions about the stock, your risk appetite, your account size, etc.

Consequently, you are no longer limited to buying or selling, but can react depending on the situation.

There are many different ways to develop complex strategies that you can use to your advantage. They are not limited to deciding whether the stock price will rise or fall. You will also be able to make a profit if the stock just doesn't move at all. The toolbox gives you all these possibilities, which, once you understand them, can be chosen to suit any situation. But more about that later, let's take another look at the advantages of stocks first.

Figure 1 : CatchMark Timber Trust Inc. (CTT), Price in USD, date: 15.02.2019

Source: Yahoo Finance

Imagine you want to buy the above stock. The advantage of this is that you have unlimited time to be right. This means that you could buy the stock today and wait ten years to be right or you could be right overnight or never. In principle, however, you have an unlimited period of time as long as you keep the stock. From my point of view this is the biggest advantage of shares, apart from dividends or special distributions, with which you can generate a nice additional income over the years. Nevertheless, in order to acquire 100 shares in the example of CTT Inc. shown above, you would have to spend 935 USD. So buying shares is very capital-intensive. This is still a comparatively small stock, since companies like Amazon or Google are quoted at well over 1,000 USD per share. If you buy the stock now, you can only earn money if the stock continues to rise.

Well, when it comes to options, there are several ways you can approach this. Let's take another look at the chart. Depending on which strategy you choose, you can benefit from rising and falling prices. You could also choose an area where you would like to be profitable. Let's say that you don't care what happens to the stock - you don't put an increased value on whether it rises or falls. In such a case you set a highest and a lowest point, which must not be breached. If the stock is quoted within this price range at the expiration of the option, you will receive money. So you earn money regardless of whether the stock goes up, down or sideways. In this case one speaks of a strangle (but there are several strategies that work similarly). Sounds too good to be true, doesn't it? I will show you in the course of this book that this is easily possible and very profitable in the long run.

Hopefully this was a good example of why options trading should be considered and what explains the fundamental differences between stock trading and options trading. As I said, stock trading is justified, but for investors it is a binary event and very capital intensive. You have to buy the stock and choose a direction - up or down. By trading options you can use the leverage effect, which means that you can raise less capital and control many more stocks according to your own chosen strategy. This reduces the risk and increases the potential profit because you benefit from multidirectional stock movements. The stock goes a little up or a little down or stays close or runs sideways and simply does nothing. You can use a strategy at any time to profit from this scenario.

Please don't feel overwhelmed at this point or think of witchcraft because your world view has been turned upside down. We will deal with every tiny detail, so that at the end of the book you have a solid understanding and are able to hold your toe in the water. Trading options is a purely mechanical craft, free of emotion, as long as you stick to the mechanics.

Let's sum up the most important things. When you first hear about trading stocks and options, you'll probably be told that the safer way is trading stocks. "Options are too risky! - the rate is all too well known. This raises the question - what is risk? Are options really riskier than stocks? In the course of this book you will come up with the answer alone.

When it comes to stocks, most investors only buy shares if they think the company is growing strongly and the share price will rise. This is also called "bullish". Once you buy shares, they are yours - until you sell them again.

An interesting aspect of owning shares is that there is no limit to how high the price of a share can rise. You can sell the stock at any time when the market is open. If you sell the stock at a higher price than you paid for it, you make a profit. So trading shares is basically very black and white - the maximum loss is known at the time of the takeover and can be calculated by multiplying the number of shares purchased by the share price. In this sense the purchase of shares is quite capital intensive and you can only earn money if the share price rises. I'm sure I won't tell you anything new, you probably already knew that.

Of course, there is also the so-called short sale, i.e. the sale of shares that you do not actually own. As mentioned in the previous section, you are long when buying shares, because you assume that they will rise. Whether you like the company or believe that part of the company will drive up the price, you assume that you can buy now and hopefully sell later at a higher price.

As a seller, you accept the opposite side of this transaction. If you think that a company has reached its peak or is likely to decline in the future, you could benefit from a sellout with a short position. Selling something is also known as "short" in the investor's world. Short selling gives you the right to borrow shares and sell them at the current share price. In the best case, you sell the shares at the current price and buy them back later at a lower price. Since you want the stock to fall, you are “bearish”.

It is important to remember the risk of selling a stock. As with buying stocks, selling stocks short can be very expensive. The fact that there is no upper limit to the stock price is still true, but in this case it also means that there is no limit to the risk of losing a stock, as you may have to buy it back at a higher, undetermined value. Just like buying stocks, you have to be right about short positions to make money, so the stock has to move in the direction you forecast. If you sell 100 shares at 100 USD per share and this rises to 110 USD per share, you would have lost 10 USD per share because you sold it short. In this example, this would mean a total loss of 1,000 USD.

Most investors still regard equities as a long-term investment. Even if we decide to buy and sell them more often, it ties up a lot of capital, even in a margin account where you would normally only have to invest 50% of the value of the shares. At the same time, it is extremely difficult to determine the price direction of stocks correctly and consistently. This is one of the reasons why we trade options. Trading options allows us to change our attitude of "Where do I think this stock is going".

In contrast to many short-term equity transactions, trading an option is not just a 50/50 bet. Our option trading style allows us to choose different prices to become long or short stocks, known as strike prices. This allows us to make money even if we go straight in the wrong direction! We can make smarter trading decisions by setting clear goals and defining exit strategies. Since option strategies themselves usually require less capital than the equivalent of 100 shares, traders can use option strategies to do more with their money.

Enough talk, let's dive into the world of options and see what is really behind all that is said.

Remember:

Options offer significantly more application possibilities than pure trading in shares.

Thus strategies can be adapted/selected rather to the own opinion.

Options benefit from the leverage effect and tie up less capital.

Options should under no circumstances be confused with warrants or other derivatives such as knock-outs.