A Better Way to Gain Leverage than Buying on Margin

Five years ago, when I just started investing, I read books about great investors like Warren Buffet, Peter Lynch – people who made big bucks investing in stocks. So what better way to start than to emulate the legends of investing and all they talked about are stocks. So at that time, I have not heard about derivatives. Or rather, all I have heard about derivatives is that they are very risky and people lose lots of money trading derivatives so I basically avoided them.

However, when I started dvelving into options, I realised they provide so much versatility that I asked myself why didn’t I learn about them sooner. For instance, if you don’t know about options and just started buying stocks to invest, you might possibly come across concepts like buying stock on contra or buying stocks on margin. These are the financial tools available if you are very bullish on a particular stock and looking for some form of leverage so you can earn more from your sound judgement. However, after I learn about options, I found that gaining leverage by buying stock on margin is so much more inferior to simply buying call options. Read on to find out what I mean.