Afzal Lokhandwala, USIC Champion: Why trading stocks beat options. Cites Market Wizards

The verified trading champion stresses the importance of trading stocks in generating long-term wealth.

With advancements in technology and living in the age of information making trading and investment more accessible, Indians have inculcated the habit of optimizing their savings. From young students to housewives, people belonging to all walks of society have entered the market and are willing to stay therein, making profits. However, access to multiple trading instruments has made ill-informed players prone to making poor decisions, putting their hard-earned savings at stake.

Keeping this abundance of information accessibility in mind, Afzal Lokhandwala urges traders to choose the vehicles they trade in more wisely. Stocks and options are the two most common trading vehicles in India. Having observed the market closely and spent several years operating in the same, Afzal has come to the conclusion that traders are better off dealing in stocks to generate long-term wealth and make relatively more secure choices. He has witnessed the merits of stock trading throughout his professional career, a major milestone of which is his 2022 USIC (United States Investment Championship) win where he achieved 447% returns by trading stocks.

Afzal believes that understanding the benefits of stock trading over options trading requires traders to be aware of what exactly the two instruments are.

Possessing an in-depth knowledge of both stock and options trading, Afzal highlights the exceptionally high risks involved in options trading. He actively dissuades traders willing to generate wealth in the long term from dealing in options as it increases their chances of losing their entire investment due to high volatility. He says, “Trading in options is the fastest way ordinary traders lose money in the stock market. Most options traders are addicted to the volatility and risk that comes with it.”

Afzal supports his argument by citing examples of some of the most successful market wizards who have made it big through stock trading. Talking about the illustrious journey of Mr. Rakesh Jhunjhunwala, Afzal says, “Mr. Jhunjhunwala had said that trading was the mother of all his wealth. Unlike a lot of his peers, he remained a judicious trader throughout his life along with being an astute investor. Needless to say, stock trading worked wonders for him and helped him earn the reputation that will live on.”

Addressing the change in the Indian stock market over time, Afzal claims that stock traders today are in a much better position than a few decades ago. He adds, “Earlier, traders had limited options in choosing stocks they wanted to trade. Liquidity was also a major issue in the country, making short-term trading difficult. Over time, the Indian market expanded, with more number of stocks and higher liquidity. This made it possible for more and more traders to venture into short-term stock trading”. 

Further, Afzal shifts his gaze away from India and explains how stock trading has been a reliable way of generating wealth in the US markets, too. From Nicolas Darvas and William O’ Neil to David Ryan and Kristjan Kullamägi, Afzal bases his argument on the success stories of countless market wizards around the world who have attained unmatched supremacy through informed stock trading. 

With SEBI recently publishing a study highlighting the loss-inducing nature of derivatives trading, Afzal urges Indian traders to be more mindful of the route they follow. “There may be a few traders with supreme expertise finding success with options, but most ordinary traders I come across tell me that they make money in stocks and lose it all in options. In my opinion, stock trading is the way to go for ordinary traders,” concludes Afzal.