Advertisement
Online Test Banks
Score higher
See Online Test Banks
eLearning
Learning anything is easy
Browse Online Courses
Mobile Apps
Learning on the go
Explore Mobile Apps
Dummies Store
Shop for books and more
Start Shopping

What’s the Difference between Stocks and Options?

Just like stocks and futures contracts, options are securities that are subject to binding agreements. The key is that options give you the right to buy or sell an underlying security or asset, without being obligated to do so, as long as you follow the rules of the options contract.

The key differences between options and stocks are

  • Options are derivatives. A derivative is a financial instrument that gets its value not from its own intrinsic value but rather from the value of the underlying security and time. Options on the stock of IBM, for example, are directly influenced by the price of IBM stock.

  • Options, like futures contracts, have expiration dates, while stocks do not. In other words, while you can hold the stock of an active company for years, an option will expire, worthless, at some point in the future. Options trade during the trading hours of the underlying asset.

  • Owning an option doesn’t give the holder any share of the underlying security. The right to buy or sell that security is what options are all about.

blog comments powered by Disqus
Advertisement
Advertisement

Inside Dummies.com

Dummies.com Sweepstakes

Win an iPad Mini. Enter to win now!