What is an option?

[clavocat]

i hear it alot and its prolly something very simple but how does it differ to just buying stock?

[Mad Girl Investor]

Clavo, for almost all basic stock market questions, www.investopedia.com can answer them all.

[clavocat]

Originally Posted by Mad Girl Investor

Clavo, for almost all basic stock market questions, www.investopedia.com can answer them all.

i looked and i understand its getting a stock at a fixed price...but now what is it when people say..i trade options, i think im just confused, i looked it up but am kinda lost.

[Thierry Martin]

From www.investopedia.com

Stock Option

A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

In the U.K., it is known as a "share option".

American options can be exercised anytime between the date of purchase and the expiration date. European options may only be redeemed at the expiration date. Most exchange-traded stock options are American.

____________

Some traders prefer trading options, because you control a lot more stock than if you buy it outright. The danger here is that if your trade goes bad, you end up with nothing - when you actually own stock, it may be worth less, but except for companies that go belly up, you still have the shares.

[jacobnbr1]

Originally Posted by clavocat

i hear it alot and its prolly something very simple but how does it differ to just buying stock?

They are tricky things to trade. My advice for you is to stay away from them until you become more familiar with trading.

I am sure by now you have read some articles of how guys have made thousands on simple trades with options. You have to know what direction the stock is going to trade it, it has to do it by a certain amount of time also.
I do options but i go after time decay trades vs's the trend trades.

[Bman409]

Don't mess with options

You WILL lose your money.

All of it, if you stick with it long enough.

[clavocat]

hmm i guess i understand a little better...i do not plan on trading these anytime soon, if ever...but i was just curious as ive heard people talking about them, so basically you either make tons of cash or lose it all?

[chinaman711]

Lots of info at cboe.com for options. Im holding calls on cvx and vlo as i think oil goes higher and calls on paas as i think silver goes higher and calls on my favorite chinese company xing. Gives you lots of leverage

[clavocat]

Originally Posted by chinaman711

Lots of info at cboe.com for options. Im holding calls on cvx and vlo as i think oil goes higher and calls on paas as i think silver goes higher and calls on my favorite chinese company xing. Gives you lots of leverage

i understand it better now...but what really makes it THAT much riskier than stocks?? is it cuz u either make it big or lose it all??

[chinaman711]

Because options are dated but if you are trading them for a few days not any more risky then the stock and alot less money tied up. Example last thur i bought 30 calls on VLO at .35. I call + 100 shares of stock so my investment to control 3000 shares of vlo was $1050.00 where as it ould have been over $190,000 to buy 3000 shares. I have a sell in for today at .85 see what happens.