![]() Sell 100 shares of that underlying stock at a certain price on Each option contract represents the right to buy or Underlying something else typically the value of a stock or stock Welcome to Options for Income and the wonderful world of stock 11 Placing an Option Trade with Your Broker. 10 Options Spreads: Buy and Sell Options Simultaneously. 8 Buying Call Options as a Stock Replacement Strategy. It’s a nice story, but in options trading, people who believe in fairy tales don’t make Table of Contents Setting Up Your Options Account. In that fairy tale, a boy named Jack plants some magic beans and a beanstalk grows up to the clouds. Jack and the Bean “Stock” I like to think of stock in terms of a bean “stock.” Everyone is familiar with the fairy tale Jack and the Beanstalk. This provides the trader with virtually unlimited flexibility to tailor his directional and temporal outlook concerning a stock and do so at the lowest possible cost. ![]() In contrast, options allow you to limit your capital at risk to only those portions of a stock’s price movement that you want – and for only the period of time you think necessary. Stock is a very blunt investment instrument that’s sort of like being forced to buy a telephone package of local, long-distance, call waiting, caller ID, and voicemail when all you really want is a local dial tone. ![]() In chemistry terms, call and put options are the “atoms” that make up a stock “molecule.” When you buy a stock, you are buying exposure to the full range of a stock’s price movement – up and down – for an unlimited period of time. Compared to stock, they are very inexpensive. Each option contract represents the right to buy or sell 100 shares of that underlying stock at a certain price on or before a certain date. They derive their value from an underlying “something else” – typically the value of a stock or stock index. Options for Income Strategy Manual By Jim Fink, CFA Benefits of Stock Options W elcome to Options for Income and the wonderful world of stock options! Stock options are derivatives.
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