In stock market trading, there is a distinction between buying a stock and buying a stock option. Options serve as a form of leverage, controlling a high volume of money while using a significantly smaller amount. This has it's disadvantages; while you can earn a lot more money than what you put in to control the options, you can also lose as much as the full value of the stock if the worst should happen.



A stock option is only an opportunity to buy stock at a given price, regardless of its market value. This does not obligate the purchaser. This means you do not have to purchase the stock (exercise your options) if you think things are not going favorably. However, options are typically time/price dependent. You need to wait until the particular stock reaches a particular price before you "exercise" them, or you need to "exercise" them before a certain time or a certain date.

Stock market trading differs from an option trading strategy in regards to the fact that option trading strategies vary on the types of options. Availability of options are on the exchange which includes stock and bonds, commodities, and futures to name a few. It can also be available through over the counter options for example, interest rate.

There are a few issues that arise in calculating the value of options. For example, options are not concrete. When owning one you only own something's potential. There are instances where models have grown over the years and contributed to financial understand. One example being the winner of the Nobel prize in economics. However, it is extreme complex and takes effort to understand most of the models.

However, all of the models do rely on four basic actions being short and long puts and short and long calls. Call refers to the option to buy and put refers to the option to sell the stock. Both being at a fixed price at the time you put in the call or the put. The stock can be expected to increase or decrease in stock market trading, so the long long and short always refer to different option strategies for managing the puts and calls.

I have to repeat that financial stuff can easily get complicated and hard to understand, and simply assuming that you'll simply learn by doing it is not advisable. If you continue jumping first then look, then you're on your way to broke land. Its good advice to adopt the old gambler's rule: "If you don't understand a bet, don't put money on it."