Trading Options vs Stock | Options Basics #1 - Blackstockguy

What are stock options? How do they work? And how can you make money with options? Options contracts are essentially the price probabilities of future events. The more likely something is to occur, the more expensive an option would be that profits from that event. This is the key to understanding the relative value of options. Let’s take as a generic example a call option on International Business Machines Corp. (IBM) with a strike price of $200; IBM is currently trading at $175 and expires in 3 months. Remember, the call option gives you the right, but not the obligation, to purchase shares of IBM at $200 at any point in the next 3 months. If the price of IBM rises above $200, then you “win.” It doesn’t matter that we don’t know the price of this option for the moment – what we can say for sure, though, is that the same option that expires not in 3 months but in 1 month will cost less because the chances of anything occurring within a shorter interval is smaller. Likewise, the same option that expires in a year will cost more. This is also why options experience time decay: the same option will be worth less tomorrow than today if the price of the stock doesn’t move. Read more: Options Basics: How Options Work | Investopedia http://www.investopedia.com/university/options/option2.asp#ixzz4cMehNvNP

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1. I apologize for the skipping and missing content. My system was not optimized for youtube. If you have any questions feel free to ask them here. Remember I trade options live on Wed & Thur