Are options much like "Rain checks" ?

Question

in any way are options similar to rain checks in the way they work ?

Answer 1

Not really, at least in the way that I think about it.  A "rain check" gives you the right to buy something at a sale price later even though the store is temporarily out of the product, but you do not have to pay anything for the rain check.  One type of option, the "call" option is vaguely similar in that it gives you the right to buy a stock within a certain period of time at a specified price no matter what the actual market price of the stock is at the time of purchase.  However, the call is not free. You have to pay an amount that varies with the price of the stock, the amount of time to the expiration of the option, how far the price is from the strike price(the specified price), and how volatile the stock is.  There is another type of option called a "Put" that you can purchase which gives you the right to sell a stock that you own at a specified price at any time up to the expiration date no matter what the market price of your stock is on the  date you sell it.  Options get to be a fairly involved subject because not only can you buy calls and puts, but you can also sell them and there are elaborate combinations of calls and puts at different strikes.  Options are basically a type of contract that gives you the right to buy or sell a stock at a given price if you are the  purchaser of the option and that gives you the obligation to buy or sell a stock at a given price if you are the option seller.  There is always an expiration date for the option.  It is important to recognize that options can be traded (i.e. bought and sold) directly without ever owning or selling the underlying stock.  Buying a call option is much cheaper than buying the underlying stock and if the stock price goes up, you can sell your call option at a profit.  However, unlike the stock your call option is a decaying asset, i.e. it loses value as time passes and this is an important risk in trading options.