5 Reasons Young Investors Should Trade Options San Francisco Chronicle
Options belong to the broad class of financial instruments known as derivatives, described by Warren Buffett as, "financial weapons of mass destruction." While it is certainly not advisable for a young investor to dabble in complex over-the-counter derivatives, exchange-traded or listed options such as equity and index options have many benefits if used prudently. Here are five reasons why every young investor should explore trading options.
In Pictures: 10 Options Strategies To Know
1. Investment Opportunities with Limited Capital
The average young investor has limited capital to invest, as he or she is quite likely burdened with student loans, a car loan and rent payments while working at one or more entry-level jobs. For such cash-strapped young investors, options are a great way to get into the markets while plunking little money down - something that also limits their potential loss or exposure.
Consider a savvy young investor who is bullish on General Electric (NYSE:GE), which is trading at $19, and expects it to rise to $23 over the next year. While a minimum market lot of 100 shares would cost $1,900 plus commissions, the investor could instead buy long-term options known as Long Term Equity Anticipation Securities (LEAPS) on GE for a fraction of the full cost of the shares, while retaining all the upside if the stock does move higher.
