What Are Stock Market Options? For Those New to Investing
May 29th 2011 17:18
By Chris Gargan
When you buy a stock in a company you are buying a part of the company. Now to make this article easier to understand I am going to describe a company that I will use as an example.
Company XYZ
1000 stocks in total for the company
Cost of each stock is $1.00
Now if I buy 1 stock out of the 1000 out there I will own 1/1000 of the company. Well a stock option is different. When you buy a stock option you are not buying any of the stock. What you are buying is the option to buy that stock at a certain price later. You might be thinking that this is a horrible idea because you no longer own any of the company. However, the great part of purchasing a stock option is the leverage you get with it.
If you purchase 100 stocks from company xyz and the price of the stocks then rise to $1.50 and you sell all your stocks you just earned $50.00
not bad but.....
If you had purchased just 1 stock option (each option is for 100 stocks) which would have cost you $14 and the price of the stock had then risen to $1.50 each and you use your option would have then made $435.65.
I know which I would choose
Now the reason that this stock option will earn you so much more is because you can purchase more for the same cost and for every dollar that a stock price rises the price of an option (the amount you can sell it for) will rise exponentially. For example if the stock price rises $1.00 then the stock option price might rise $5.36 so less change has to occur to make profits.
Now since I am talking about stock I must warn you that every caution should be taken when investing. In fact there is a lot of risk in the stock market you need to carefully consider each purchase you make because you can lose money. You should only invest with money that you can afford to lose. Of course your goal is to profit but you can never tell which way the stock market will be swinging on any given day because if there was then we would all be billionaires. There are other methods of making money online from home that offer more security, perhaps not quite as much profit potential, but still allow you to earn a profit from your house.
Article Source: http://EzineArticles.com
When you buy a stock in a company you are buying a part of the company. Now to make this article easier to understand I am going to describe a company that I will use as an example.
Company XYZ
1000 stocks in total for the company
Cost of each stock is $1.00
Now if I buy 1 stock out of the 1000 out there I will own 1/1000 of the company. Well a stock option is different. When you buy a stock option you are not buying any of the stock. What you are buying is the option to buy that stock at a certain price later. You might be thinking that this is a horrible idea because you no longer own any of the company. However, the great part of purchasing a stock option is the leverage you get with it.
If you purchase 100 stocks from company xyz and the price of the stocks then rise to $1.50 and you sell all your stocks you just earned $50.00
not bad but.....
If you had purchased just 1 stock option (each option is for 100 stocks) which would have cost you $14 and the price of the stock had then risen to $1.50 each and you use your option would have then made $435.65.
I know which I would choose
Now the reason that this stock option will earn you so much more is because you can purchase more for the same cost and for every dollar that a stock price rises the price of an option (the amount you can sell it for) will rise exponentially. For example if the stock price rises $1.00 then the stock option price might rise $5.36 so less change has to occur to make profits.
Now since I am talking about stock I must warn you that every caution should be taken when investing. In fact there is a lot of risk in the stock market you need to carefully consider each purchase you make because you can lose money. You should only invest with money that you can afford to lose. Of course your goal is to profit but you can never tell which way the stock market will be swinging on any given day because if there was then we would all be billionaires. There are other methods of making money online from home that offer more security, perhaps not quite as much profit potential, but still allow you to earn a profit from your house.
Article Source: http://EzineArticles.com
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