What is an Option

What is an Option?

Ok… Ok…

You have watched some YouTube videos on the subject, you have several articles read under the belt and saved some money to go wild in the stock market.

 

Maybe you have bought some shares of your favorite company and are really excited looking at it 4 times a day to see if it moved up.

 

Filled of deception a month after the stock price have gone nowhere.

“Thanks MAG, I should have left my money into my checking account, at least I would have done 0,02%.”

Hold on, Hold on. Don’t be so harsh with me.

There are more articles coming.

 

Today is one of them.

 

Have you ever heard about “Stock Options”?

This is a super simple concept but I find that it is always explained in a too complicated way.

So my goal is to try to explain it like if it was to my mother.

 

Let’s use the analogy of a car: Tesla Model S 100D.

Let’s buy this 128 400$ model. Why not?! You told me you have some money saved.

 

I’m buying it.

I’m owning it.

I can sell it tomorrow if I want.

 

That is a lot of money on the table what do you think?

For me, for a car… that’s a lot!

 

So what about buying an option on it instead.

I don’t really want to commit right now and put all that 128 400$ upfront.

So I will BUY an option that gives me the RIGHT to buy the Tesla later at a define price for a define period of time.

 

Easy peasy, right?

Dear readers, this is Options!

 

Precisely, options are contracts that gives the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.

 

An option in the stock market is like real life examples; like the Tesla deal.

You have the option of doing it, or not.

You can go to the theater with your friends, or not.

You can buy this candy bar, or not.

 

If you are struggling getting it, it’s ok.

It took me 5 years before getting even interested about understanding it.

 

Let’s use another example.

Sometimes it’s easier with brick and mortar.

Read the next article: “What is a Call option and a Put option and how does it work? — Part1 – Buying a CALL”. (Coming March 17th 2018)

 

 

– Make It Happen –

MAG

 

 

*Read more: 

=Investopedia

 

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