What can I do with a "option" I heard-read that you can buy a stock on option ???

Question

I JUST COPIED THE TEXT WHERE I READ IT !!!

For example, to buy 100 shares of Microsoft (MSFT) at today's price would require about $3,000 but you could purchase the right to buy 100 shares of MSFT at $30 per share for only $140 and that right would be good for 3 months.

If in the next 3 months MSFT moved from $30 to $36 and you owned the stock, you would make $600 or 20% on your money. Not bad for only 3 months.

However, if you purchased an option for $140 and MSFT moves to $36 you would still make the same $600 but you only put up $140, giving you a return of 328% in 3 months. If MSFT dropped from $30 to $24 you would lose $600 by owning the stock. With an option you could never lose more than the $140 premium you paid.

Answer 1

The type of option that is discussed in that text is a "call" option. A call option gives the buyer the right, but not the obligation, to buy something (called the underlying) at a predetermined price (called the strike price) prior to a predetermined expiration date.

There is also a put option. A put option gives the buyer the right, but not the obligation, to sell something (called the underlying) at a predetermined price (called the strike price) prior to a predetermined expiration date.

When the underlying is a stock, the option is known as a stock option and, in the United States, the contract size is standardized at 100 shares.

For a more complete explanation, I recommend you take the "options overview" tutorial at

http://www.cboe.com/LearnCenter/Tutorial...

Answer 2

Yup, that's true, but you are betting the price will move within the time frame to the price you contracted.  If it doesn't you simply lose all of what you invested.

If you bought a common stock, you have infinate amount of time to wait, provided the company does not go under.