Advantages of option investment:
1. Effective use of funds
Options allow investors to participate in larger market fluctuations with smaller funds. By purchasing options, you can synthesize the long and short positions of spot or futures, and at the same time occupy less funds. Synthetic prices are sometimes more attractive, for example, there may be a discount when synthesizing long positions and a premium when synthesizing short positions.
2. Low-cost long-short strategy
Call options with deep real value can replace direct spot purchase, which takes up less funds and has limited risks. Sometimes the price of deep real call option is even less than its intrinsic value (time value is negative), thus realizing the opportunity of buying at a discount. Similarly, deep put options can also replace direct short selling of spot.
3. Maximize profits
For investors who have an accurate judgment on the market trend, options provide an opportunity to formulate a variety of portfolio strategies and exercise prices at different maturity dates to maximize profits.
4. Flexible response to fuzzy market judgment
If there is no clear judgment on the short-term trend of the market, but there is a vague expectation, options can also help earn income. For example, you can sell the corresponding put option based on the belief that the market will not fall below a certain price after one month.
5. Volatile trading
When the fluctuation of the underlying assets is predictable but it is difficult to determine the direction, there is still a chance to make money in option trading. By adopting strategies such as cross-warehouse or gamma brushing, investors can benefit from changes in volatility.
6. Bottom-hunting and shipping strategy
Options provide a flexible bargain-hunting and shipping strategy. For example, you can sell put options at the price you want to bargain and call options at the price you want to ship.
7. Open and increase shareholding income
Options can help investors liquidate their positions and improve the return on the stocks they have already held through strategies such as covered buying.
8. Hedging flexibility
Option hedging can not only effectively hedge risks, but also retain opportunities for profit. Investors can construct different options to reduce the cost of hedging.
9. Innovative trading methods
Options introduce new trading methods, such as volatility trading. Volatility trading has low correlation with other strategies, which can improve the portfolio and increase the Sharp ratio. Volatility, skewness and volatility term structure can be traded.
Although options bring many benefits, they also have corresponding risks, and investors need to think carefully when using options.