Become a better investor
Lesson in Course: Ambition reviews (beginner, 5min )
Part 1 of Prepare for options trading
When we speculate, we make decisions based on what is happening to the price of an investment in the short term with the hopes of making a quick buck.
When we invest, we base our decisions on the fundamental value of what we're buying.
Options tend to have more moving parts than stocks, and we may have heard about the negative consequences of misusing them.
Options contracts are very versatile. They can be used to add leverage or to hedge a position. Regardless of the use, we can use options when we have an opinion on the future price of an asset.
If we think the future price will go up, we would consider buying call options. If we believe the future price will go down, we would consider buying put options.
The most significant difference between a stock and an option is that the option represents the agreement or promise between two investors.