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Options vs. Stocks: Differences, Pros and Cons, & Examples

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Written by Timothy Sykes
Updated 11/24/2021 14 min read

Options vs. Stocks: Key Takeaways

  • See what makes options different from stocks…
  • Check out examples of how options trades can play out…
  • Learn from my student who’s made insane money trading options!

See How This Millionaire Trader Uses Penny Stock Patterns For Options AND His $100K Shortcut

One of my earliest Challenge students, Mark Croock, applies penny stock strategies to options.

So even though I don’t trade options, I want you to see what’s possible in the markets. That’s why I started my Trading Challenge

I want traders to become self-sufficient and learn what works for them. So what do you need to know about trading options vs. stocks? And what can you learn from Mark? Let’s get to it.

How Are Options Different From Stocks?

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We’re talking about stock options vs. actual stock ownership. Options are derivatives — financial instruments that have no value on their own. The right to buy or sell the underlying stocks gives options their value.

There’s more to the options vs. stocks discussion…

But I want to focus on why YOU should trade options vs. stocks.

You know how I always say trading is a battlefield?

Well, options trading is really a battlefield. It’s a zero-sum game. Either you or the buyer (or seller) will lose.

The market’s determined by the balance of supply and demand. There are always winners and losers.

But sometimes stock transactions are win-win. Maybe the seller makes a profit they’re happy with, and the buyer does too.

It’s a bit different for options traders. The advantage of buying options vs. stocks is that you get to see the result before you own the stock.


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Let me be clear — I’m in no way advising you on when to buy options vs. stocks. I don’t trade options. I’ve made $7.3 million trading penny stocks.

Stocks, for me, are simple. People can complicate trading in a lot of ways. To me, that just raises the barrier to entry.

When traders get caught up in complex technical analysis, they can miss a basic truth…

Only price pays.

This is why I teach simple patterns to my Trading Challenge students. I still use my 7-step pennystocking framework for a good reason…

It still works.

Now more than ever, small account traders have a place in the market. And you can increase your odds by building your knowledge account.

You’re getting a small taste of my teaching approach with this article. If you want to build your knowledge account, I encourage you to join my Trading Challenge. But know that I’ll ask a lot of you.

Apply to the Trading Challenge today — only if you’re truly willing to put in the hard work it takes! My team and I don’t accept everybody. 


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If you want to trade options, there’s a lot to learn.

For now, I’ll do my best to keep this simple. There are two basic types of stock options — call vs. put.

Call options give you the right, but not the obligation, to buy a stock at a specified price. Put options are the sell side of the equation.

This preset price is called the strike price. If the stock goes up by the end of your option term, a call option lets you buy the stock at the strike price. A put option lets you sell a devalued stock at the strike price.

Sounds like a good deal, right? So what’s the catch?

Every options contract has a premium attached to it. This is the non-refundable amount that the options seller receives.

There’s also an expiration date on the option and a lot of other considerations…

When you get into day trading options vs. stocks there’s a lot more to know.

If you’re getting your options vs. stocks ideas from Reddit, I want to add some caution to the mix.

A lot of traders treat options like lottery tickets. If the bet’s right, you collect. If not, try again.

This is the opposite of my approach to trading. I want you to go for singles and limit your risk.

Option premiums often exceed what I think of as acceptable risk. Sexier options can either bring big profits or loss of the original investment…

To me, that’s a hard way to build a good trading strategy.

Options vs. Stocks: Examples

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Let’s say stock XYZ is trading at $13…

Want to buy or short it? The price is $13. Whenever you want, you can exit the trade.

Yes, there are a lot of things you should know going in, like whether the stock is liquid enough to exit when you want to…

But at its most basic, trading stocks is relatively easy. Options trading can be much more complicated.

To price an options contract premium, you’ll need to set a strike price and expiration date. The stock’s volatility also affects the premium.

So say your target stock is trading at $13.09. You set the strike price at $13 — this is called an in-the-money option.

You could sell it immediately and make 9 cents per share … But that’s not a great idea if the premium costs you 57 cents per share.

You could tinker with the strike price, sending it further out of the money. But doing so will likely reduce your chances of making a profit.

Options vs. Stocks: Which Should You Choose?

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When you’re deciding on a trading strategy, look at your trading journal to see where you excel. If you’re choosing to focus on options vs. stocks, look at your track record with each strategy.

For me the choice is obvious — I love trading penny stocks. That’s my go-to niche. But the reason I teach isn’t to create clones of me…

I teach so my students have the tools to become the traders they want to be.

I want you to make this decision for yourself … So for this next section, I want you to learn more about top Challenge trader and mentor Mark Croock.

The Best Options Trader I Know

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As I mentioned, Mark has taken my penny stock patterns and adapted them to options trading. He’s developed a program to teach his strategy called Evolved Trader.

He’s made over $3.2 million so far, mostly trading options.

He might have made his millions in a different way than I did, but I think he did it the right way…

Just like me, he believes that small gains add up. It took him 10 years to get to where he is now … That’s proof of his patience, ability to adapt, and his strategy working over the long term!

Too many options traders think you should go big or go home. With this approach, they mostly go home.

It takes REAL DISCIPLINE to keep greed and emotions out of your trading plan. Mark has learned this, to a fault.

See this post to learn more about how Mark evolved his trading style.

These days Mark teaches in my Trading Challenge and runs his Evolved Trader program. He made over $1.2 million in 2020. This year, as of this writing, he’s made over $650,000 in profits.

Why trade options instead of stocks? If you want the best argument I’ve heard, check out Mark’s $100K Shortcut here.

Pros and Cons of Trading Stocks

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When you buy stocks, you’re buying a share in a company. This can be bad for a trader…

For example, if the company goes bankrupt and you don’t cut losses, you lose the entire share price. And if you short sell a stock and the price goes up, your loss can be unlimited.

Pros and Cons of Options

When you’re buying an option, your loss is limited by the premium you pay. If the trade goes against you, you lose the upfront cost and nothing else.

When you’re selling an option, you’re responsible for all of the buyer’s profits. This is the risky part — your loss is also unlimited.

And there’s more risk…

I love trading volatile penny stocks. But volatility is a different thing when you’re locked into a transaction date as you are with options.

Better understand the pros and cons of volatility with my “Volatility Survival Guide” available at no cost. Volatility is a key ingredient in my trading style. And it’s essential for understanding the market. Study up now!

Can I Trade Stocks and Options?

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You can trade anything your broker will allow. Find a broker that fits your trading strategy first.

Frequently Asked Questions About Options vs. Stocks

Let’s go to the FAQ and see if there’s anything I missed…

Is Trading Options a Good Idea?

This is a question between you and your trading plan. Options can be part of a smart trading strategy if you know how to use them right.

Are Options Better Than Stocks?

Again, this depends upon your preferences and risk tolerance. It’s always a good idea to paper trade or trade small with new strategies.

When Should You Buy Options Instead of Stocks?

You can use options for hedging against another trade or applying more leverage. It all depends on YOU.

Can You Lose More Than You Invest in Options?

First of all, you’re not investing in anything with options … you’re only buying the right to make a trade. If you’re the options buyer, your risk is limited to the option premium. If you’re the seller, your risk is limitless.

Where Are the Best Places to Trade Options?

Established brokers like TD Ameritrade and E-Trade can be good candidates for options traders, but remember there’s a small fee of 65 cents per contract for both. You can trade options on Robinhood for free.

The Bottom Line: Options vs. Stocks

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Options trading is a complicated sub-category of trading…

Like any kind of trading, it can be profitable if you know what you’re doing…

And you can blow up your account if you don’t.

That’s why I stress education in my Trading Challenge. If you know what you’re doing, you’ve already got an advantage over most of the market.

And if you’re thinking about complex subjects like options vs. stocks, you’ll need a SOLID education!

What do you think about trading options vs. stocks? Do you prefer one over the other? Let me know in the comments — I love hearing from my readers!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”