Major Differences Between Stocks and Options
Leverage
Options typically cost only a fraction of the stock price. If you think XYZ stock, currently at $49 per share, is going up in price, you can purchase 100 shares at a cost of $4,900. If instead you buy 1 call option contract (1 contract represents 100 shares of stock), you might pay only $2 per share for a total of only $200 to participate in an upward price movement of XYZ.
Analogously, if you think XYZ is going down in price, you could short 100 shares of stock, but that creates a margin responsibility in your brokerage account, which can become costly if XYZ goes up. If instead you buy one put contract, you might pay just $2 per share for a total of only $200 to participate in a downward ...
Get Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
