What is an option? How is that different than a stock?
An option is a contract to buy or sell a stock at a specific price during a specific time. Options are divided into calls and puts and you can either buy or sell each. Let’s say you buy a March 2008 call at 500 on Google for $30. You have bought the right to purchase 100 shares of Google at $500 a share anytime before March expiration (expiration is the third Friday of each month). If the price of Google is $600 a share you’ve just made $70 per share (current stock price of 600 – strike price of your call 500 – the money you spent to buy the call 30 = 70). If the price of Google is $400 a share you have only lost the money you spent to buy the call. Does that make sense?
