lystn

Hey everyone, Kirk here again and welcome back to the daily call. Today, I want to answer a question that somebody submitted which was, “Are index options more profitable or are stock options more profitable?” The simple answer to this is – Neither is more profitable than the other. There's no definable difference between trading index options and trading stock options one, in and of itself. Just using an underlying product is not more profitable than the other. It always comes down to strategy and the way that you either buy or sell options and the way you manage your portfolio. I think the only real big difference between these two is that index options just carry a lot more value and weight, meaning you should trade them more with higher denomination accounts, so larger accounts, find that it's easy to start trading index options because they have a higher contract value, you don't have to sell as many contracts or buy as many contracts as opposed to regular traditional stock options on a stock or ETF which might have a lower denominational value and you might have to buy say five or six for every one index option that you buy. I think that's the real difference just from a scalability or leverage point. The other thing that you will do run into with index options is you run into the fact that there are not as many index options to choose from, therefore, your universe or your pool of trading becomes much smaller. In fact, you can't diversify out of index options that quickly. There's no currency index options right now, for example. If you want to trade a currency like FXE or FXY, like the Yen or the Euro, you’ve got to choose one of those ETF products because there's no indexable, optionable security out there right now that you can trade versus opposed to say the SaP 500, you can choose the SPY which is more of the ETF type route versus the SPX which is an index option route. There's two different choices there. You can choose which one you want to go with. That’s probably another big… I don’t want to say downside to index options, but just something you need to be aware of, is that if you need to get diversity in say the oil markets or you need to get diversity in the currency or the semiconductor markets or retail, there’s probably not a huge index that you can trade. You’re probably better off going with an ETF. I’ve often said when I coach clients who’ve got larger accounts that it becomes more and more difficult actually as your account balance grows to still have the capacity to get all of your trades in because as you start trading significantly higher capital sizes, you have to allocate those and it becomes more tough because if you have an ETF that’s a low value ETF, you might have to place 20 contracts at a time or 30 contracts at a time. It's not as efficient as being able to place just two or three index options. There is that scalability, that leverage side of index options which again, doesn’t make it more or less profitable, just something to be aware of. Hopefully this helps out. As always, if you guys have any questions or comments, let me know. Until next time, happy trading!