Options – I finally understand it

A wonderful article on Finshots explaining what options is in stock trading.

For instance, imagine you see shares of your favourite tech company trading at Rs. 80 today. Now you believe this stock will rally and reach Rs. 120 anytime soon. The only problem — if you wanted to buy 1,000 shares right now, you’d have to cough up Rs. 80,000 — a rather steep amount. But what if you could change the nature of this bet a tiny bit? What if you could find someone who’s willing to hear a different proposition? More importantly, what if you could make him an offer he couldn’t refuse?

So you set the agenda. You ask him what he thinks about your favourite tech stock? He tells you he isn’t very optimistic. He makes it explicitly clear that the upside is fairly limited. He mocks your optimism and offers you his unabashed opinion.  “It won’t cross Rs. 90 in the next 6 months. I’ll give it to you in writing”, he says. You are overjoyed. This is exactly what you wanted to hear. So you ask him to give it in writing — a contract of sorts.

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