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Published On: Fri, Jun 9th, 2017

Millennials Are Becoming Options Trading Experts

A recent study by E-Trade Financial found that 40 percent of millennials execute options trades online, at least once a month. This is compared to around 25 percent of Generation X. Millennials did grow up in a digital world. And, there are many digital tools that make it easy and convenient to engage in options trading. Over the past decade, options trading has seen a rapid rise in popularity. In 2007, the average daily volume for options trading was 11.4 million. Well, in 2017, the average daily volume for options trading is 16.5 million–this is according to The Options Clearing Corp. As you can see, that is a 45 percent increase.

Millennials don’t want to suffer through another Great Recession

The Great Recession of 2008 saw many Millennials losing hope for their future. For the first time in modern history, Americans were faced with the possibility that a generation may not have more money and opportunity than the generation before it. America has long been based on the idea that each new generation had bigger and better opportunities than previous generations. The Great Recession changed a lot of that thinking.

Plus, Millennials were in college or graduating from college and had fewer job prospects than previous classes. Now, with the rise in technology, they have access to many opportunities for options trading. Not to mention, investing is one way to secure some type of income if and when the job markets ever decline again. Millennials don’t want to be in a vulnerable position as they once were.

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Options are used to generate income

Selling options is a good way to make income, regardless of the direction of the market. The E-Trade study found that 35 percent of Millennials used it to create leverage and 25 percent to hedge against losses. With today’s low interest rates, many investors are turning towards writing options. For Millennials, options allows them exposure to varying asset classes without needing the money to buy the underlying security.

Option strategies

One popular option strategy is making short bets on the underlying stock, or betting that the price will decline. With this method, all you have to do is wait for the expiration date. If the price goes down, you get to keep your premium rate. A more complex strategy would be straddling, or bets on volatility. This is where you bet that a stock will move by a specified magnitude in contrast to a particular direction. E-Trade did not ask what strategies were used.

Micro investing

Another way Millennials are investing is through micro investing apps such as Digit or Acorns. These apps, and others, work by connecting to your bank account and investing your spare change. You can also specify how much you want to invest. If you were to invest $5 a day, over 30 years, at a 6 percent interest rate, you could eventually increase your initial investments to six figures. Many Millennials would like to retire before they turn 60–investing wisely is one way to make achieve that goal.

It appears that Millennials are carving their own paths and writing their destinies. Through investing, they will not let another recession control their way of life.

Author: Carmelo Hannity

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