What are stock options? I’ve been hearing about puts and calls on the financial networks for years but never understood them. How does the average person get started?
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An option is a type of contract where you have option to buy (call) or sell (put) at a specific price at a later time.
A call can limit your downside risk vs just buying the stock. You buy the call at a price near where the stock is currently trading. If the stock later goes up, you exercise the option, then immediately sell at the higher price and pocket the difference. If the price goes down, you don’t exercise and you’re only out the price of the call option you bought. If you had bought the stock you could potentially lose your entire investment if the company goes bankrupt or something.
A put can be used for short selling, again, limiting the downside risk to just the cost of the option. If you do just a basic short sale (not a put) and the price skyrockets like a meme stock, you could be on the hook for a lot of money!
If you want to get started, ah, open a brokerage account.
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