Options are Better than Stock (Part 1)
Posted by Mark on September 6, 2016 at 06:09 | Last modified: July 24, 2016 12:22Options folk enjoy debate about things like which trading strategy is best and which adjustment is best. Almost unilaterally when I hear a discussion like this setting up, an immediate answer pops to mind: neither is better or worse—they each have their pros and cons. I feel options are a better vehicle to trade than underlying stock but because of my reluctance to proclaim superiority, I rarely communicate this to others.
In 2014, I made the case for options with a six-part blog series. In Part 1, I wrote:
> I actually believe that trading options is better than
> trading stocks or futures. This would be very, very
> difficult to prove, though. When it gets down to the
> trading system, whether discretionary or systematic,
> it would be extremely difficult to convince anyone
> that options are unequivocally better.
For this reason I took a defensive posture with option trading. I suggested the financial industry represents option trading as making a “deal with the devil.” I then attempted to inject reasonable doubt to weaken that claim. I explained why options are not “too risky” and I went on to offer some advantages of trading options.
In this blog series, I am taking a more aggressive approach: options are a superior investment/trading vehicle to stock. I will make the argument with covered calls/naked puts, which I have blogged about at length.
Pay close attention because the implications of option superiority are significant and wide-ranging. For starters, it may rarely be in one’s best interest to own long stock shares without a hedge. To the extreme, perhaps the vast majority of the financial industry as we know it (e.g. financial/investment advisers) is completely wrong.
Let’s take this one step at a time.