Want to explore the differences between swing trading vs options trading? Technically, swing trading and options trading aren’t mutually exclusive. You can actually swing trade options – getting the best of both worlds if you’d like!
Swing trading is a trading strategy that seeks to capitalize on short-term fluctuations in an asset’s price movement. Options are simply an investment vehicle you can trade on the stock market – just like stocks.
With that said, the focus of today’s conversation will be specifically on swing trading stocks vs options. And by the end of this detailed article, you’ll have a better understanding of how each of these fits into your investment strategy – and which is worth dedicating more of your time and energy to. Let’s get right into the conversation at hand!
Swing Trading vs Options Trading: Key Differences Explained
We are going to start this discussion by breaking down the details of each style of investing: swing trading and options trading. After you have a better understanding of how each of these strategies works, we’ll compare and contrast them to help you fine-tune your investing strategy based on your own unique goals. First – what is swing trading?
What is Swing Trading?
What are swing trades? As we briefly discussed earlier, swing trading is simply an investment strategy that seeks to capitalize on short-term fluctuations in an asset’s price along its long-term term price trajectory. You aren’t considered with the fundamentals of that asset. Instead, you are focused on whether a trend is present where you can ride the “swing” along a short-term price increase, and get out before that price “swings” back down. Most swing trades occur over the course of a few days, or a few weeks at the very longest.
That means that whether an asset is increasing or decreasing in value over the long haul, you can make money – as long as there is some degree of volatility creating those price swings. With swing trading, the overall return per trade is lower – with realistic swing trading returns being around 3-5%. Thus, to enjoy high swing trading profits, you need to leverage higher amounts of capital and be consistent in your trading strategy.
And while swing trading stocks is typically the most common way to go about this strategy, you can actually swing trade any asset that exhibits the right characteristics. That includes swing trading ETFs, and of course, options. More on that later. For now, let’s move to the other side of the coin in today’s debate…
What is Options Trading?
Now – what is options trading, exactly? And how do stock options work? Options trading is a slightly more complex investment strategy, but it offers the potential for much higher returns than swing trading. Essentially, when you trade options, you are entering into an agreement where you buy or sell a certain amount of shares in an asset at a predetermined price.
There are two different types of options contracts you can buy:
- A call option gives you the ability to buy the asset in question
- A put option gives you the ability to sell the asset in question
How do you make these a profitable part of your trading strategy? It’s all about forecasting and making calculated guesses as to what the price of an asset is going to do in the future – before the exercise date on your contract (at which point the contract must be exercised or it becomes void). Say you think the price of cattle is going to rise over the next year – you could buy a 12-month call option contract, allowing you to then purchase cattle at today’s price – getting a discount. Similarly, if you think an asset is going to drop in value, you can purchase a put option to sell the asset at a premium in the future.
The big takeaway is that options also allow you to “leverage” your capital – meaning that with fewer funds, you can control larger positions in the market – making it relatively easy to generate large profits off of even small fluctuations in the markets.
We have a complete guide on how to buy and sell stock options if you want to learn more about this specific strategy. For now, let’s get to the real reason you came here – comparing and contrasting swing trading vs options.
First – Understand That Swing Trading vs Options Trading Isn’t Mutually Exclusive!
Many are searching for information on the difference between swing trading vs options trading. But this is where things get a bit tricky – because you can actually swing trade options! In fact, we have a complete guide on swing trading options. Here’s what you need to know, though.
While options contracts typically have an exercise date, that doesn’t mean you can’t exercise your options sooner.
For example, say you think Company XYZ stock is way overbought and the trend that’s been driving the price up is about to break. You can purchase a put options contract for 1,000 shares at $10 each. If your theory proves true and the price tanks within a few days or weeks of purchasing your contract, you can exercise your option and sell the stock at a premium.
The benefit of this is that you limit your risk exposure with options. If your theory proves false, and the stock continues rising, you simply let the options contract expire without exercising it.
Now – with that said, let’s progress the conversation to swing trading stocks vs options specifically. These are two very different investment vehicles, and each has its pros and cons. So – let’s examine those below.
Swing Trading Stocks vs Options: Pros & Cons Compared
To fully understand the difference between swing trading stocks vs options, it’s important that you realize they’re actually quite similar. They’re both ways for you to gain ownership in a company – you just go about it slightly differently! That’s why we have a full article covering stock options vs stock. But really, you’re just here for the pros and cons – which is better in the swing trading stocks vs options debate?
Both swing trading stocks and options trading offers the potential to make money in the markets. But which is better? Here’s the key information you need to make an informed decision for yourself:
Swing Trading Pros:
– Low capital requirements – you only need a few hundred dollars to get started
– Relatively low risk exposure compared to other strategies such as day trading
– You can swing trade any asset that exhibits the right characteristics
Swing Trading Cons:
– Potential for lower returns than more complex strategies like options trading or futures trading
Options Trading Pros:
– Leverage your capital – with fewer funds, you can control larger positions in the market and potentially generate higher returns
– The ability to buy or sell an asset at a predetermined price
– Manage risk – you can limit your exposure to the markets with options contracts
Options Trading Cons:
– More complex than other trading strategies, requiring more research and understanding of the markets
– Potentially higher risk if not executed correctly
Options Trading vs Swing Trading Stocks: The Verdict
So – which one is best for you? It really depends on your goals as an investor. Swing trading is simpler and a great way to get started in the markets. But if you’re looking for higher returns and have a good handle on the markets, then options trading might be worth considering.
And as you may already know, there is no reason you can’t dabble in both options trading and stock trading. With that said, it’s typically best to go all in on one investment strategy if you’re just starting out – and for that, we recommend swing trading. Learning swing trading is far more simple, so you can hit the ground running faster. And with VectorVest, it can be even quicker and easier…
Whether You Choose Options Trading vs Swing Trading Stocks, VectorVest is Here to Help
At VectorVest, we’re on a mission to empower investors like you with the resources and tools necessary to minimize losses & maximize profits – with less work along the way! If you want to. consider other investment strategies, we have a host of great comparison resources like this on. You can learn about – trend trading vs swing trading, swing trading vs buy and hold investments, swing trading vs scalping, position trading vs swing trading, stock warrants vs options, or day trading vs swing trading.
But, the biggest value we have to offer you is our stock analysis software. No matter how you trade, this is an absolute necessity for the modern investor. It simplifies your strategy by telling you exactly what to buy, when to buy it, and when to sell it. It doesn’t get any easier than that!
All of this is possible through our proprietary stock-rating system. This eliminates the need to constantly track swing trading indicators or follow moving averages. Instead, just rely on three easy-to-understand ratings that tell you everything you need to know: relative value (RV), relative safety (RS), and relative timing (RT).
These sit on a scale of 0.00-2.00 – with 1.00 being the average. By picking our highest-rated stocks, you’re setting yourself up for success. To make things even easier, VectorVest even provides a clear buy, sell, or hold recommendation based on these three ratings.
And, we have pre-configured stock picks to bring winning opportunities to your screen on autopilot. You’ll never have to worry about how to pick stocks for swing trading, day trading, or long-term investing – just take a look at our top picks on any given day! With a mobile stock advisor app, you can bring your investments on the go too. See the system in action and discover what you’ve been missing out on – get a free stock analysis today.
Final Thoughts on the Differences Between Swing Trading vs Options Trading
As you can see, there are some substantial differences between stock swing trading vs options trading. They both have their time and place, but beginner investors are best off sticking with stocks rather than options – which can be more complex. Ultimately, though, you should experiment with both at some point in your career to see which you prefer. There is no right or wrong answer!
At this point, the only thing left to do is get set up with VectorVest: the best platform for swing trading, options trading, day trading – you name it. Jumpstart your journey to earning consistent profits with minimal work!