Is buying options really safer than buying and selling stock?

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In one short statement: Yes (Sort of)

In this article, you will learn the major differences between buying stocks vs buying options contracts plus which method of investment is safer. If you need a good reliable online stock broker, I recommend TD Ameritrade.

Buying Stocks

Buying stock is one of the most traditional ways to invest. You simply buy shares in a publicly traded company through a licensed stock broker. You initiate the order through your broker then they purchase the shares for you. The downside to owning stocks is that you take on 100% of the risk.

If the stock price goes towards 0, then you lose your entire investment. However, you also benefit from any stock gains.

Buying Options

Stock options are a bit different than owning shares. You buy the option to perform a certain action at an pre-determined expiration date. The most commonly bought options contracts are calls and puts. Calls are for bullish investors who think the stock price will rise. Puts are for bearish investors who think the stock price will fall.

Options carry much less risk because you need a lot less money to invest. You can control 100 shares of APPL stock for much less than buying those 100 shares at the current trading price.

Which is Safer: Stocks or Options?

Options are much less risky because you have more control over your investment. You can also sell options at any time before the expiration date and close your position.

As they say… The more risk, the more reward. That’s the case when it comes to stocks. You have the potential to lose everything, but also can become a millionaire just like speculative investors who bought Apple stock in the early 90’s.

In reality, both investment vehicles carry risk but your losses will be much smaller with options. For more information on options trading, check out how to buy stock options.