What are options on stocks?

Question

I wanted to find out what options are when it comes to the stock trade. Calls too

In: Economics

Answer 1

You can make a call on the apple stock today, and that will allow you to buy the stock, let’s say the stock is worth 100$, you can buy it for 100 $ in a month.

If the stock increases in price to 110, you then buy the stock for 100 $ as agreed, sell it and earn 10$.

If it falls instead, you don’t exercise the option and don’t lose anything.

The call option, is the option to buy a stock at a predetermined price at a later date.

The put option is very similar, and allow you the option of selling the stock at 100. If it fall to 90, you will earn money buy buying the stock at 90 and selling it through the option at 100.

Because options only have upside, you have to pay the issuer to get one.