| There is quite a difference between buying stocks | | | | expires. There are always two sides for every |
| outright and purchasing stock options. When you | | | | option transaction - a buyer and a seller so for |
| purchase an option, you are betting on the | | | | each option, either call or put that you purchase, |
| direction of the market. However, option trading | | | | there is someone selling it. |
| has very different characteristics than purchasing | | | | Stock option trading can be compared to betting |
| shares and there is a lot of terminology and tricks | | | | on the racetrack where you are betting against |
| of the trade that a new trader should learn in | | | | other people. Buying stocks is compared to |
| order to successfully trade options. | | | | gambling in the casino, where you bet against the |
| There are two types of options - calls and puts. | | | | house. Trading options is a 'zero-sum game', which |
| Purchasing a call option means that you have the | | | | means that the option buyers gain equals the |
| right (however, not the obligation) to purchase the | | | | sellers loss and vice versa - they are mirror |
| stock at the strike price at any time before your | | | | images of each other so there is no positive or |
| option expires. When you purchase put option, | | | | negative cost involved. |
| you have the right (however, again not the | | | | Stock option trading can be a very lucrative game |
| obligation) to sell the stock at the strike price any | | | | and many traders use options as part of their |
| time before the expiry date of the option. A call | | | | larger strategy based on a selection of stocks. It's |
| option is purchased when you expect the price of | | | | important that if you want to begin stock option |
| the stock to inflate, a put option when you | | | | trading that you understand the ins and outs of |
| expect the price to deflate. | | | | the market, the stocks and stock option trading |
| The main difference between buying stocks | | | | before leaping in head first. There's a lot to do |
| compared to options is that when you purchase a | | | | with option trading and you can be quite |
| stock, you own a piece of the company whereas | | | | successful if you take the time to learn these |
| when you purchase a stock option, you simply | | | | skills as well as research the company and stock |
| have a contract that allows you to buy and sell | | | | history of the stock and company that you are |
| the stock at a specific price before the option | | | | looking to purchase stock option in. |