A friend recently asked me why I trade options instead of stocks.

“Isn’t it riskier?”

Look, I get it. On the surface, options seem super complicated, and stocks feel more straightforward.

But once I explained my reasoning, my friend actually asked me for an options-trading crash course.

Just think about holding shares over the past few weeks…

The U.S. and Israel launched coordinated strikes on Iran. The Iranian Supreme Leader was killed. Iran responded with over 700 missiles and drones. Markets have been swinging wildly.

Garden-variety stock traders had very limited choices: long, short, or do nothing. 

But options traders had tools like VIX calls, SPY puts, and oil spreads at their disposal, which could’ve hedged their portfolios from a major drawdown (or even flipped them green).

Options offer flexibility that common shares just can’t match. 

You just need to use the right tools at the right time.

And that’s where my “3 S’s of Options Trading” come in…

Speculation

One of the biggest advantages of options trading is the ability to speculate in ways you simply can’t with stocks.

When you own shares, your potential profit depends entirely on the stock price going up. If the share price doesn’t rise, you either face a loss (or make smaller gains). 

A.K.A. you’re stuck.

Unless you have a large account to short-sell shares, it’s nearly impossible to profit on red days.

But options allow you to profit from up, down, and even sideways moves. Strategies like spreads, straddles, and iron condors let you tailor your trades to the market.

Even if you do want to bet against a stock (or the broader market), puts are the best way to do so.

I don’t know why anyone would naked short common shares when the “option” to buy puts is on the table (excuse the pun).

Shorting stocks has theoretically unlimited risk. If the stock you’re shorting rips to new all-time highs, you’ll lose more money than you invested in the position.

This can put you at risk of receiving a margin call and blowing your entire account up.

If you buy puts, your risk is defined. You can never lose more than your initial principal investment.

Options offer speculative flexibility, even on the toughest trading days…

Speed

Another key advantage of options is the ability to control the speed of your trades.

Stock traders often wait weeks (or even months) for the price to hit their target. That can tie up your capital in opportunity cost and limit your opportunities.

Options let you match your trade’s timeline to your market outlook….

Weekly Options

These expire within a week and can deliver huge, fast returns if the stock moves in your favor. However, they lose value quickly (like, 30-50% in minutes) if the stock goes the other way.

Monthly Options

These expire every third Friday of the month and are widely traded. They often have better liquidity and tighter bid-ask spreads than weeklies.

Long-Dated Options (LEAPs)

If you think the stock needs more time to move, or you want a lower-risk trade, long-dated options (expiring months or years out) are a great choice. Buying in-the-money (ITM) contracts can mimic owning shares, making them great for creating “synthetic long” positions.

This flexibility allows you to adapt to different market conditions, adjusting the speed of your trades to fit your goals…

Size

Most importantly: Options give you incredible flexibility in position sizing. 

With stocks, you need a significant amount of money to see meaningful gains. But with options, you can control a large position with much less capital.

Each options contract represents 100 shares of the underlying stock, giving you leverage. This means you can risk less money while allowing room for big gains.

For example, let’s say you have $1,000 to trade:

If you buy shares of a stock priced at $50, you could afford 20 shares. If the stock rises $5, you’d make $100.

But with options, you could buy five contracts at $200 each, controlling 500 shares. If the stock rises $5, your profit could increase by 100%-500%, giving you a much higher return.

This leverage can amplify your gains, but it’s a double-edged sword. It can also increase your losses.

Size carefully. Think small. Smaller trades can limit potential losses (while still giving you room to profit).

These 3 S’s make options trading work.

Use them, harness them, be one with them. 

*Past performance does not indicate future results