Folks, Quick answer to a MONEY\\INVESTING question.
The question is: “What is the primary Difference Between STOCKS and OPTIONS”?
Short Answer: When you BUY or SELL a Stock, you buy or sell a TANGIBLE\\PHYSICAL thing known as Shares. Stocks deal with ownership of\\in Companies.
Ownership of\\in SHARES aka Stocks can last forever. You own them. If they go down in price, you can hold them till they rise in price to recover your money. You can buy a Single SHARE of a STOCK in a Company. It is yours till you sell or the company goes out of business.
OPTIONS: When you buy an OPTION, you OWN NOTHING. You are BUYING or SELLING and EVENT that may or may not occur to a Company WITHIN A FIXED DATE. If the EVENT OCCURS within the specified period, the Value of your OPTION goes UP. Your OPTION can also Go Up If it does not occur
If by the specified date, the EVENT does not occur, you LOSE all the money, known as Premium that you invested. As @OGMACO aptly pointed out, OPTIONS is pretty much like high speed SPORTS BETTING. The good thing is that, you can BET, UP, DOWN and In-between on a single bet.
Here in US, OPTIONS are sold in 100 bundles known as contracts. 1 Contract of TESLA Option equates to 100 SHARES of TESLA Stocks. The moment you BUY\\SELL and OPTION, the clock starts ticking. As the date to expiration nears, it either goes up or down or Worthless.
For example, if you buy a CALL which expires on April 16 for a $750 Strike for TESLA. You are saying, on or before April 16, TESLA STOCK will be trading at $750. If on that Date, it is not, you lose the money you paid to buy it. The event in this instance is the price going up.
NOTE, that the person who bought it from you has THE RIGHTS, BUT NO OBLIGATION to ask for it even if it is below $750, but that would not make sense because they can also buy it from open market. Hope this simple explanation helps
WARNING: OPTIONS Trading is for Sophisticated investors and CARRIES A LOT OF RISKS. You CAN LOSE A LOT OF MONEY trading OPTIONS. For this reason, OPTIONS TRADING requires approval from your BROKERS. Do NOT DABBLE into OPTIONS UNLESS YOU KNOW WHAT YOU ARE DOING.
You can follow @CbianBen.
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