How do stock options work? Are there different ways to buy and sell them?

Answer 1

Stock options are stocks that give you the option of when to buy. Suppose you are given a stock option with a price of $20. What you do is hang on to the option until the ACTUAL price of the stock is above $20....lets say $25. At this point, you can EXERCISE the option (this means you recieve the difference of the option price and the current price, minus any fees and taxes of doing so) This never entails using out-of-pocket money. Set a plan on when you want to exercise the option....usually it takes a couple of years.

Answer 2

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There are primarily two different catagories of options people discuss. One is issued by companies to employees as part of their compensation contract allowing the employee to buy a certain number of shares from the company in the future at a set price. I believe that is the type of option that Michael G was attempting to describe, but he used a lot of terms incorrectly. Since this type of option is rarely, if ever, bought or sold I am assuming you were asking about the other type of option, exchange traded options.

To get a basic description of exchange traded options go to

http://www.888options.com/basics/whatis/default.jsp

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I am not sure what you mean by different ways.

In one respect, the answer is no. Option trades take place when a buyer is willing to pay the price a seller is asking for an option. That is always true.

In another respect the answer is yes. If you are simply trading stocks you have two basic types of orders you can give your broker, buy and sell. With options there is a third type of order, a spread order. A spread order says you want to trade two different options (or trade an option and a stock) for a certain price. For example, a spread order might say "Buy 10 BSXCD" and "Sell 10 BSXCE" options for a net price of $0.10.

If instead you mean "Are there different strategies for using options?" the answer is once again yes. Some people use options to lower risk, some use options to increase leverage, while others use options to try to make money by utilizing the characteristics of options pricing.

Answer 3

purchase to open only means you're establishing a place. purchase a call or positioned once you at the instant are not short. purchase to close = paying for to close a place (paying for the contracts to cover a quick). sell to open = shorting sell to close = merchandising out an prolonged place. there is additionally a 'lined' determination which you will verify or opt for in case you're merchandising calls and are long the consumer-friendly inventory. It seems such as you're able to do a splash extra study earlier you undertaking into techniques paying for and merchandising. they are able to be complicated and should not be tried earlier you already know them completly. solid luck to you! joey