It is poorly worded , a poor example. and incorrect. If you buy a stock options contract good for 1year you pay the entire premium/ price up front
Ok I have read and read and read and still don't understand what an option is.
- Thread starter TheFoot
- Start date
wrong and misleading. from so many angles. Your entire post should be ignored.
Step up to the plate and and answer the OP's question what is the difference between an options contract and a futures contract.
A future is a promise to buy or sell an underlying at a certain price by a certain end date.
An option is the right to choose whether to promise to buy or sell the underlying at a certain price by a certain end date?
Lol, I realize it makes zero sense, that last one, but that is how I see it in my head. Which is why I do not trade options. The fack is with those things.
Feel free to elaborate. On the other hand, don't bother.
It was not for a 6 year old like you but a 5.
Short fuses make for lousy traders.The ignorant always respond with a personal attack.
I think I understand it now guys. Thanks. If I'm understanding it correctly an option is the downpayment on a stock with the option to buy at a certain date. I can also forget my downpayment and walk away from if it I want but I loose the downpayment. If the stock goes up I can still buy it at the price that was agreed on.
Does that sound right.
Does that sound right.
The Foot
In simple terms:
Option Buyer gets the right to BUY ( CALL option) or SELL ( PUT Option) an underlying asset (to keep it simple a stock) but has no obligation to do so.
So his/her max risk is the "Premium" he pays to obtain that option.
There are few other factors in it like strike price/ expiry/ style of exercise etc + lot of math behind what makes option price.. please read up on CME website
So Stock trading @$10
If you purchase a CALL option with a strike of$10 expiry in 3 days/ 3 months whatever duration you pay a certain amount of premium upfront. as simple as that.
Once you understand CALL and PUT buying then think o/P and understand what "Option selling" is and then perhaps Option spreads etc.. it starts getting complex then on
There is ton of material available on Options on the net
In simple terms:
Option Buyer gets the right to BUY ( CALL option) or SELL ( PUT Option) an underlying asset (to keep it simple a stock) but has no obligation to do so.
So his/her max risk is the "Premium" he pays to obtain that option.
There are few other factors in it like strike price/ expiry/ style of exercise etc + lot of math behind what makes option price.. please read up on CME website
So Stock trading @$10
If you purchase a CALL option with a strike of$10 expiry in 3 days/ 3 months whatever duration you pay a certain amount of premium upfront. as simple as that.
Once you understand CALL and PUT buying then think o/P and understand what "Option selling" is and then perhaps Option spreads etc.. it starts getting complex then on
There is ton of material available on Options on the net
In the most basic sense of buying a call option, yes, that is the gist of it.