The Metaphor of the House
In order to understand what an option is, let’s relate it to something in the real world. Most are familiar with how real estate works. In real estate there are basically two ways to make money. You can buy the property, live in it, wait a long time, then sell the property, hopefully at a profit. The second way to make money in real estate is to buy the property and rent it out. This brings in an income from the rents regardless of the value of the property. If later you sell the property for a profit then so much the better. But the real income was from the rent, not necessarily from the future appreciation of the property.
The problem with renting the property is that during that time ...
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