Stock Options
Offer More Potental Profits
And Plenty of Risk, You can Loose it All

When it comes to stock options, it is a misleading notion you will gain more profits since they are stock substitutes with higher leverage, which require less capital than buying actual stocks. What can be done with options is that you can bet on the direction of the movement of the stock and with it the price of the stock, just as you would do if you owned the actual stock.

Put Options To Sell, Call Options To Buy
Both Make Money

Options come with distinctive differences when compared to stocks. As we know, the two different types of options, calls and puts, together with the change in the value of the stock determine when you should buy or sell the option. Both the call and put option can be exercised at the strike price before the expiry of the option.

The difference between options and the actual stocks is that while the latter gives you a real slice of ownership of a company, the former only offers you contracts with the right to buy or sell at certain prices within a certain date. For every option transaction completed there are two parties: a buyer and a seller. Remember that for every call option or put option purchased there has to be someone who is selling the same.

When a trader sells and option, she/he creates a security that had no prior existence. This process is called writing the option. While writing call options, you may be obliged to sell off shares at a strike price, while when writing a put option you may have to buy the shares at strike price before the expiry date.

In terms of returns, there is a major difference between stock-options trading and actual stocks, in the fact that option trading is a ‘zero sum game’, whereby all the players are involved in either a profit or a loss relationship, but when you trade stocks all the players stand to win profits if the situation strikes right for all of them.

Two styles of options exist, the American and the European. Recently, the inauguration of the NASDAQ options market has been welcomed by many options traders. The NASDAQ options market deals in equity, index options and ETF. The index options available are mostly in the European style.

All options have the criterion of being valid till a certain time, that is, till the expiry date. Stock shares have usually a three day settlement time frame, while stock options have to be settled within the next day.

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