The pros & cons of leverage in options

Options leverage is a core concept of options trading. For a given capital outlay, investing in options will increase your potential returns compared with investing in the underlying stock.

[{"selector":"#anim-3f477b57-e2c7-4249-a518-004cd5bca2da","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-353e9f12-0aa3-4e2a-b2a2-84973169f2e4","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Learn more

What Is Leverage?

[{"selector":"#anim-db493e31-833e-4690-b7d5-d390c4b555fd","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-81118f47-0fe5-449c-a628-11822b6e51f5","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Learn more

How Leverage Works in Options Trading

[{"selector":"#anim-6b87cd21-6691-49a7-9155-df1b269f6e7b","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-bb7dc01f-f714-43d7-b385-a63ea89d00d2","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Medium Brush Stroke Learn more

Calculating Leverage

[{"selector":"#anim-7091f253-996c-4a96-98bc-b6392fbbb404","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-33405f70-e03c-4bae-815d-15e72989cf4c","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Learn more

The Takeaway

[{"selector":"#anim-baee351d-ea43-4a1f-b7b4-6da1e933a114","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-d9228c29-095b-4e47-a5f9-0c3bc9898907","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Medium Brush Stroke Learn more

SWIPE UP NOW TO READ MORE!

[{"selector":"#anim-cbe55e6d-97e5-4133-a448-51f64c7610bd","keyframes":{"opacity":[0,1]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"both"}] [{"selector":"#anim-5fad2b02-de1c-4e6c-8411-8727f9e4ae97","keyframes":{"transform":["scale(0.3333333333333333)","scale(1)"]},"delay":0,"duration":2000,"easing":"cubic-bezier(.3,0,.55,1)","fill":"forwards"}] Learn more

Finding a financial advisor doesn’t have to be hard. SmartAsset’s free quiz matches you with fiduciary financial advisors in your area or who serve your area. If you are ready to be matched with financial advisors that can help you achieve your financial goals, take the quiz now.

[{"selector":"#anim-1554112a-336b-4831-b91d-0f09ed24d8a9","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.4, 0.4, 0.0, 1)","fill":"both"}] [{"selector":"#anim-6c74bd7a-91d0-41df-8af9-cd65959bf511","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.4, 0.4, 0.0, 1)","fill":"both"}] [{"selector":"#anim-8a4ddd6b-eb4c-442b-9a65-ed8913dedbdf","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-6dee9553-9d41-49a3-8b1a-3afb7d92a534","keyframes":{"transform":["translate3d(0px, 99.16371%, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] How I paid off over $80K in credit card debt Top 10 places for expats to live in Spain in 2023

The pros & cons of leverage in options

Options leverage is a core concept of options trading. For a given capital outlay, investing in options will increase your potential returns compared with investing in the underlying stock.

What Is Leverage?

Leverage applies to a variety of different financial products. The leverage example most familiar to people is the purchase of a home.

How Leverage Works in Options Trading

No matter which strategies for trading options you use, you may increase the leverage of your investment by using options.

Calculating Leverage

The options leverage example above presents the options price movement from $5 to $15 without explaining what drove the price change.

The Takeaway

Options can be a way to increase your returns, but with those higher potential returns comes higher potential risk.

SWIPE UP NOW TO READ MORE!

Finding a financial advisor doesn’t have to be hard. SmartAsset’s free quiz matches you with fiduciary financial advisors in your area or who serve your area. If you are ready to be matched with financial advisors that can help you achieve your financial goals, take the quiz now.

READ MORE