Intraday Trading v/s Option Trading – Which Is Right For You?

Overview

Typically there are two types of traders who enter the stock market – the long-term investors and short-term investors. 

Long-term investors focus on building wealth over time via investing in assets and equities such as mutual funds, bonds, stocks, etc. 

However, short-term investors focus on making money within a specific period of time using the right strategies. 

But what’s common in both – all are here to make money work for them. 

When it comes to short-term trading, traders often get tempted and perplexed in selecting the right way to trade, such as whether to go for Options or Intraday?

Although there are many basis of comparison one must do, here we have simplified both Option and Intraday Trading basics so you can select what works in the market, especially for you.

Let’s get started…

What is Intraday Trading?

‘Intra’ is a Latin word that means ‘inside’ or ‘within’; within a single place, time, or group. 

Aforesaid, intraday trading, in simpler terms, is buying or selling listed stocks within the same day. It mainly focus on making money on short-term price fluctuations within a single trading day. For this, they trade potential performing stocks throughout the day, aiming to benefit from small price movements. 

Intraday trading is suitable for mostly technical traders, disciplined traders, and traders who have good timing. 

Also Read: Diwali Muhurat Trading: A Blend of Tradition and Prosperity

Benefits & Limitations of Intraday Trading

Benefits of Intraday Trading	Limitations of Intraday Trading
Quick Bucks: Potential for quick profits	Risk of Loss: High risk of losing money if market moves against your position
No Overnight Stress: No overnight exposure, reducing risk from overnight market movements	Need Technical Knowledge: Requires a good understanding of market trends and technical analysis
Multiple Trading Shots: Opportunities to trade multiple times in a day	Constant Monitoring: Requires constant monitoring of stock prices and market conditions
Less Brokerage: Lower brokerage charges compared to delivery-based trading	Emotional Impinge: Emotions can impact decision-making, leading to impulsive trades
Low Capital Requirement: Can start trading with a small amount of capital	No Time Delay: Limited time frame for decision-making, which can lead to errors

Now let’s see who is standing at the other side of the ring and what is its strength and weakness. 

What is Option Trading

Let’s take a look at this example. Imagine you feel a strong intuition that the price of a particular company will go up within the next ten days. Now you want to buy bulk stocks, but don’t wanna gamble such a huge amount based on just speculation. 

Here the options come in the picture. Options trading bonds a special contract, allowing you to control the right to buy (call option) or sell (put option) the stock at a certain price (strike price) by a specific date (expiry date), without having to own the stock. Just like an agreement that offers you the opportunity to buy or sell at a pre-set price, but you’re not obliged to. 

In technical terms, they are part of a bigger family, known as “Derivatives”. Traders put their money for puts, call, swap, etc. for making quick gains. Options trading is full of risks and rewards, however, as per data, 90% options traders end up facing losses. 

Options are best suitable for active traders, directional investors, and individuals who are comfortable with potential risks. 

If traders with the right purpose and good research, options can play the role of financial safety net. It acts like an insurance policy of potential investment, helping in minimizing the significant losses. 

Benefits & Limitations of Option Trading

Benefits of Option Trading	Limitations of Option Trading
You can make big profits with less money	You could lose all your money
You can make money when prices go up or down	Sometimes options expire without value
You can use different strategies to trade	Some strategies are hard to understand and need constant attention
You can limit how much you might lose	Fees and charges can reduce your profits
You can protect your other investments	Options lose value over time

Difference Between Intraday Trading vs Option Trading

It is difficult to select between intraday or options trading, especially when both are as tempting as watching a chocolate truffle, not being able to eat. Ultimately, it depends on the preference, circumstance, and personal style of the individual which one to go for. Here is a quick comparison to help you establish the difference between both in brief:

Aspect	Intraday Trading	Option Trading
Definition	Buy and sell in one day.	Contracts give the right to buy/sell at a set price by a date.
Time Horizon	Buy and sell quickly.	Can be short or long term.
Profit Potential	Aim to profit from small price changes.	Can profit from price changes with less money.
Risk	High (Leverage). Risky due to fast changes, can lose a lot quickly.	Moderate (Market Volatility). Risk limited to premium paid.
Capital Needed	Need a lot of money for small price changes.	Need less money than buying/selling the asset.
Complexity	Can be simple or complex.	Strategies can be complex.
Market Influence	Affected by news and market sentiment.	Influenced by asset price, time, and volatility.
Profit/Loss	Based on buy/sell prices and fees.	Based on asset price vs. option strike price.
Leverage	Allows for control of large positions with less money.	Offers leverage, but losses are limited to premium paid.
Learning Curve	Steeper	Moderate

Now the comparison helps understand what differs them from each other, but it may still confuse you with the question – “which is best”. So let’s take a critical dive into both concepts and understand what it holds for you (us).

Which is Better – Option Trading or Intraday Trading 

The question should not be ‘which one is better’ but should be phrased ‘which one is more suitable’.

If you’re a beginner in the trading world, none of them is good for you as both of these require in-depth market knowledge, years of practice, risk management, and a strong trading set-up. 

If you have familiarized yourself with basic fundamentals and technical knowledge of stock market for a plenty of time (trust me for both, it is a staple), what’s left is picking your poison and dummy trade for a while.  

Both of the options are profitable whether it’s intraday or options trading. However, both need a different set of skills and trading strategies as both of them carry inherent risks along with the rewards. 

• Intraday traders often aim to make bucks out of short-term price movements where options traders don’t really own the asset, but put money in a market’s future actions or hedge against market volatility. 

• Both are based on speculation of price movement. Intraday, however, is more volatile in nature and options don’t really side with the market as it is based on panic/clam of current news and market situation.  

• Intraday is suitable for active traders who can monitor the markets closely and make quick decisions. Whereas if you’re an investor looking to manage risk in your portfolio, generate income, or hedge funds, options is your right pick. 

• Intraday trading heavily based on technical analysis blended with strong technical indicators to track or forecast the precise movement. Whereas options are based on market views and active traders in the market, needing a wide range of strategies to hedge funds. 

Hence the right answer is both are fantastic ways to make money, only if you know your own style, skill set, and risk tolerance. 

Some may do excellent with intraday trading with their quick decision making, confidence in volatile and risky markets, and their own robust research. However, some may surprise themselves with exceptional trading set-up in options trading. And some are sewn for none, but Positional (Delivery) Trading and perform best with the long-term goal set-up. 

The point is do what suits you best. Every cloth is weaved differently and it’s okay to pick your clothes based on your mood. Just walk the path of learning and wait for it to come to you. You can also begin your learning journey with some of the best trading courses, available online. 

Remember: Regardless of your trading style and preference, always practice your trading strategies on paper trading before risking the real capital. There are no mistakes in financial markets, either profit or loss, no exceptions for anyone. So better equip yourself with compatible weapons and practice before getting into the battlefield. 

In A Nutshell

Option trading is based on speculation of future market movement whereas intraday trading wraps the market stress within the day. Both intraday and options are unique way to participate in the market. By understanding the basic concepts, demand of each approach, characteristics, and limitations, you can make informed trading decisions. Always align your trading approach with your investment goals, risk tolerance, and available time. You know what they say: pick your poison wisely, so why not taste and try before making a purchase? 

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