How are Options Trade different from Stock Trading?

by David Jenyns on June 19, 2011

Question by Sophie8825: How are Options Trade different from Stock Trading?
I’m a college student and recently I’ve been playing stock simulation games online. Hopefully I gather enough capital to trade in the real market within a few years from now. What I do on the simulation game is simply buying and selling company stocks. I noticed some people make a lot of profit from doing options trade. How does Options Trade work? How is it different from regular stock trading? Would you say it’s riskier investment method than stock?

Best answer:

Answer by bryan e h
Options are not an Investment they are a bet. as in Gamble. and so are stocks to a lesser extent. Options are very short term bets. The stock owners make money because you pay them a premium for the option, that is the only reason they exist so that the stock owner can make money without risk. You will only make money on them if you get lucky or if you have a crystal ball that predicts the future otherwise you will loose.

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RRG June 19, 2011 at 11:52 am

only play in options when your 100% sure the stocks going up or down for example when the market crashed yamana AUY was a perfect buy its worth 12 dollars and was trading under 4 when the stock rallied the options went up 10 fold

James June 19, 2011 at 12:18 pm

Options are contracts that follows the price of the underlying stock but takes far lesser money to buy than the underlying stock. That is why you noticed some people make a lot of profit from doing options trade. Thats because being able to control more stocks with lesser money gives you leverage and the ability to make more money from the same move in the stock.

In short, Call options allows you to profit when the stock goes up and put options allows you to profit when the stock goes down. Both kinds of options can also be “shorted” for the reverse effect. This makes options trading extremely versatile with almost countless strategies for hedging and speculation.

The problem with options trading is that options EXPIRE. This means that after some time, if the stock did not move enough to give value to the options, the options simply evaporate and you lose the amount of money you put into it. Thats why so many people say options are risky.

Well, thats just a very very very simplistic overview of options. Options trading is way too big a subject for me to outline here and there are even seminars that teach the basics of options for over $ 5000! I learnt all my options trading for free at the site below, hope it helps.

Michael June 19, 2011 at 12:35 pm

Here are some facts about options: Options are a financial instrument, like stocks and bonds. The most common types are Puts and Calls. Like stocks and bonds they can be bought and sold using a traditional or online stock broker. Options are used in a variety of ways. Examples of their uses are to protect portfolios, to aggressively speculate and to generate income. Options are contracts, that is to say, they give the buyer of options certain rights and the seller certain obligations. Options are valid only for a specified time period. They slowly waste away in value until they expire.

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