Can anyone explain these what these terms are and mean? Plz!?

Question

I'm 16 learning about investing, I'm reading investing for dummies (and previously read "Rich Dad Poor Dad" and "Cashflow quadrant") and it mentions IBM stocks, futures, and put options but I'm dont get wat they R.

Answer 1

IBM stocks are simply common stock investments in the company, IBM.   One share reflects a tiny tiny tiny owenrship position in teh equity portion of the company.  Equity is the company's assets less its liabilities - but on a market value basis, not cost basis.

Futures are contracts traded over various exchanges in which you enter into a contract to deliver a certain asset some time in teh future.  You go long on a contract to buy the asset in teh future.  you can close the position by going 'short' on teh contract.   there usually is not actual delivery of the underlying derivative asset. Rather, the difference in the spot price and the contract price is paid.  Futures are often used to hedge against risk.

Put options are contracts to sell a certain asset sometime in teh future.  The difference between put options and futures are that put options give you teh OPTION, which you must exercise if it makes sense to.  Futures have no option feature.   So you would by a put option either 1) to hedge against a price decline in a security you already own, or 2) as a bet that a certain stock will go down.  you would buy a put option to sell the stock say at $10, and if say one month later, the stock is trading at $5, you would def. want to exercise the put and make your $5 per share profit.    Call options give you the option to buy.    

Answer 2

googlr