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Question By Apurva Tewari
"Are Index Options More Profitable or Stock Options?"
Is it profitable to trade in index options or individual stock options?
Asked on 2 March 2009
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Answered by Mr. OppiE
Hi Apurva Tewari,
First of all, index options and
stock options are both financial instruments.
They are tools that you trade with in order to profit from
your outlook on where the index or the stocks are going. Because there are
options strategies to profit from every outlook and direction,
the only thing that seperates you from your profit is whether your outlook is accurate or not. In this respect, both index options and
stock options are essentially the same and are equally profitable as long as your outlook is correct.
For example, if you expect an index to go up, you could use any of the
bullish options strategies and profit from it if it goes up eventually.
Similarly, if you expect a stock to go down, you could use any of the
bearish options strategies and profit from it if it goes down eventually.
Both are profitable as long as your outlook and "prediction" is correct.
In terms of options trading style, as long as you choose heavily traded index or stocks, you could
day trade, position trade or
swing trade both index options and stock options. In this respect, both are the same as well.
In terms of behavior, some indices can be as volatile and erratic as stocks while some stocks can be very stable as well. As such, there really
isn't any emphirical evidence to prove that trading index options or stock options is safer or more profitable.
In conclusion, trading index options or stock options are really the same and equally profitable as long as your outlook
is correct. When stocks and indices goes up or down exactly as you expect it to, there is no way you cannot make money. On the other hand, if
your outlook is always inaccurate, then there is no way you can make money no matter if you trade index options or stock options. Of course,
the advantage of options trading is in the fact that there are options strategies that you can use in order to profit from more than one outlook,
such as the
Call Ratio Spread. This greatly increases your chances of winning no matter if you are trading index options or stock options.
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