Welcome to and the wonderful world of Options Trading for Income stock options!
Stock options are derivatives. They derive their value from an underlying “something else” – typically the value of a stock or stock index. Each option contract represents the right to buy or sell 100 shares of that underlying stock at a certain price on or before a certain date. Compared to stock, they are very inexpensive.
In chemistry terms, call and put options are the “atoms” that make up a stock “molecule.” When you buy a stock, you are buying exposure to the full range of a stock’s price movement – up and down – for an unlimited period of time. Stock is a very blunt investment instrument that’s sort of like being forced to buy a telephone package of local, long-distance, call waiting, caller ID, and voicemail when all you really want is a local dial tone.
In contrast, options allow you to limit your capital at risk to only those portions of a stock’s price movement that you want – and for only the period of time you think necessary. This provides the trader with virtually unlimited flexibility to tailor his directional and temporal outlook concerning a stock and do so at the lowest possible cost.
Stock options are derivatives. They derive their value from an underlying “something else” – typically the value of a stock or stock index. Each option contract represents the right to buy or sell 100 shares of that underlying stock at a certain price on or before a certain date. Compared to stock, they are very inexpensive.
In chemistry terms, call and put options are the “atoms” that make up a stock “molecule.” When you buy a stock, you are buying exposure to the full range of a stock’s price movement – up and down – for an unlimited period of time. Stock is a very blunt investment instrument that’s sort of like being forced to buy a telephone package of local, long-distance, call waiting, caller ID, and voicemail when all you really want is a local dial tone.
In contrast, options allow you to limit your capital at risk to only those portions of a stock’s price movement that you want – and for only the period of time you think necessary. This provides the trader with virtually unlimited flexibility to tailor his directional and temporal outlook concerning a stock and do so at the lowest possible cost.
