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Thinking about getting into options trading. Can anyone give a brief intro into what it is and the pros/cons vs simple trading.

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Options have a finite life, and thus you can lose money and have no guarantee of recovering your money. With a regular stock, at least if you stick it out long enough it has the chance to recover from losses and rise in stock price. Options you trade in batches of 100 stocks, so the prices of $4.5 for a contract is equivalent to $450 dollars. For this reason, at the beginning trade options with a smaller value (I started with $1 or less contracts). Implied Volatility (IV) s important - avoid volatile stocks (which will have volatile options) at the beginning as you have less control of your outcome when volatility is high. Buying way out of the money options because they are cheaper is a guaranteed way to lose money. For example, out of the money (OTM) is when the current stock price is $40 but you are buying a $50 call. If the stock hasn't been close to $50 before, this may not be a good idea as it will take a lot to push the stock up to $50. Rather, buying a $42 call (although more expensive) gives you better chance for profit. It also decays less (look up time decay). Good luck!

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Anyway, I am stuck at airport and hence here is your brief intro. Say, you want to buy a burger from Five Guys on a certain date and the price of burger is $10. Someone, in the mean time wants to sell you a coupon for the same burger which will make it cheaper by $5 if you exercise your coupon in a month. The price of the coupon is $1. As you can see, this is a win win case for you. At worst, you tend to lose a dollar for coupon and at best you can save five bucks on your favorite burger. This coupon is an option and the $1 price is premium. Within a month, if the price of steak rises and the burger becomes $12 then you can sell your right to buy that burger at $5 at a higher price. You make money. However, on the other hand, if the price of burger comes down below $5 then you can just tear the coupon. This is called expiry. You lost a dollar but who cares? Now, if you had planned a party and ordered 100 burgers, and the party got canceled at last minute then you would have been stuck with 100 burgers. On the other hand, you can spend $100 to buy coupons to buy 100 burgers in a month. In case of options, the burger is replaced by a stock. You buy the right to purchase the stock at a higher (call option) or lower price (put option) based on how you feel about it. If you are making profit then you can sell the right to buy that stock whenever you want. This is true for American options. Options are called derivatives which means the price of the security is governed by the underlying assets. As the price of burger depends upon price of meat and bread the price of stock depends on multiple things that influence the market. Of these 4 are of particular interest. 1. Delta- It’s the change in price of your burger/stock because of change in price of meat/stock. 2. Gamma- It’s the rate at which delta changes because of change in the price of meat/stock. 3. Theta- It’s the time decay of option. In case of the coupon example, you can sell the coupon for a higher price before it expires. 4. Vega- It’s the price sensitivity of an option w.r.t. volatility. You can ignore this one for a while. This should be good enough to get you started. Good luck.

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Chic fil A or bust

High risk, high return

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Completely disagree. Options CAN be high risk high return. They can also be extremely conservative - all based on how you structure the trade and what your plan is. This is one of the most common misconceptions about derivatives I commonly see. I’ve been trading options and futures since 2007 and it’s been a significant contributor to capital development. The people derivates really hurt are those (an unfortunate large proponent of traders) who want to get rich quick and misuse the leverage provided. For those that are responsible, it’s a significant tool that greatly increases your capacity to manage your account and trades.

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Don’t.

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Don’t do it. It’s gambling in the stock market where your initial investment regularly goes to 0 and rarely doubles or triples. If you’re super set on it, spend at least 3-4 months paper trading and really try to believe it’s real money because the stress of having actual money on the line also messes with you when you actually trade.

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Pos:You can trade high price shares without actually buying the shares Cons: you can go broke af

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I started options last month and since doubled my investment. But then again I am not new to a stocks or gambling. I used to buy shares before instead I bought contracts

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Buying contracts I am familiar with.

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Not stupid at all - the option is its own item. So if you paid 1,300 for the call option, and the stock dropped, your option would decline in value (but not necessarily to 0). Therefore, you are on the hook for 1,300 at most. If you buy an option contract with a longer expiration date (let's say January of 2020) then it will decline slower than a stock option with expiration for tomorrow (12/6). So its a bit better to practice with options with expirations 30-60 days out. A bit more advanced would be selling uncovered option contracts, which is inherently riskier. Avoid this for now if you don't understand the basics, because in some cases there is no limit to what you could lose. As long as you are buying options and selling options (that you already own). You should be fine and only risk as much money as you put in.

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If i were you, I would stick to single contract trades worth less than $500 until you are able to consistently make returns.

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EY thanks for the response. So if let’s say I were to purchase a call of AMZN. Does that mean that if a the stock goes down, I would be on the line for the full price or whatever my initial investment was? Apologies for the stupid question.

Options are not nearly as straightforward as stocks and that’s the trouble with starting out with zero knowledge. Unless you want to keep losing money for 4-6 weeks by experimenting, I would seriously suggest to learn at least the basics first if not the Greeks.

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If you have to post this to fish bowl you are not ready.

I started on FB about 8 months ago, and learned through here and outside material. OP can do whatever they want. Why did you feel the need to post this?

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To put things in perspective, my doctor told me about a case where someone lost 20m of 22m. He tried to sue a pharmaceutical company for making him reckless and my doctor was an expert witness.

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