What Are Options
by Admin on Dec.10, 2009, under Uncategorized
Stock options can be a pretty popular strategy in the stock market because of the high potential returns they offer. But what are options?
A stock option is a contract which allows an investor the ability to buy or sell a stock at a specific price on or before a given date in the future. For example if you bought the $80 call on a stock you would be able to buy that stock at $80 at some point in the future.
No matter how far up a stock goes the investor still has the ability to buy it at $80, of course this can potentially be extremely profitable. But that doesn’t mean that they come without any risks. Options have an expiration date. If an investor doesn’t use the rights that they get from the option they lose it, and that includes the amount they spent to originally buy the option.
So when an investor buys a stock option they do risk 100% of the money that they invested into it. That makes them pretty risky investments.
There are some strategies out there like rolling stock options That can let an investor set the date back on the option, giving them more time, but in the end they are still risking the full 100% of what they invested. Each investor has to decide for themselves whether the rewards outweigh the risk or not.
If it does sound like an interesting strategy and you want to know, how to buy options. You will see that it actually isn’t that hard to do. Any major broker will let investors buy and sell options in their account with a few clicks of the button. But many will not let you trade options until you have some experience in the market, which is normally a good thing, especially for new investors with a get rich quick mindset.
