Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

Options are Better than Stock (Part 1)

Options 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.