options

[palaniyapan]

What are they?Please can you explain what are they?Are they like stocks?Thank you and have a nice day.

[Clanad]

The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies...

[JOEYSHABADO]

I know some big players who only really do options. They offer you the possibility of huge rewards for limited outlays. They also offer near unlimited losses. So be careful! It's quite common to purchase a stock and to 'cover' yourself by buying "call" options on that stock.

Put option = option to sell.

Call option = option to buy.

I would definitely trade normal stocks before you touched options. And make sure you understand them fully first. Most people will now be losing money on daytrading and derivatives.

[JOEYSHABADO]

Sorry, cover with a 'put' option, not a call option.

[Hammer]

If you buy a call option, you buy the right (but not the obligation) to buy shares at a certain price at a certain point in the future.

So if you bought a call option on Vodafone with an exercise price of �1.50 and expiry date of 31/12/05, you have the right to buy the shares at this price by this date.

If the market price of Vodafone went up to �2 you could buy it for �1.50 and immediately sell for �2 and make a nice little profit. If the price of Vodafone was only �1, you would just tear up the option and throw it away and not buy for �1.50.

Put options are similar, but you have the right to sell, not buy.