Trading Stocks vs. Trading Options

Kal Zurn
A free video tutorial from Kal Zurn
Option Trader | Founder of "Option Trading for Rookies"
4.7 instructor rating • 7 courses • 43,769 students

Lecture description

This is a quick comparison of the differences between trading stocks and trading options.

Learn more from the full course

Options Trading for Rookies: Understand Options Completely

Part 1: Learn everything you need to know about options, what they are, how they work, buying vs. selling and more!

02:17:07 of on-demand video • Updated September 2020

  • Understand options and how options work (strike prices, bid-ask spread, etc.)
  • Learn the foundation of options trading (leverage, POP, etc.)
  • Learn the differences between calls and puts
  • Learn the difference between buying options and selling options
  • Learn how to trade calls and puts effectively
  • Understand and use the most important rules in options trading
  • Learn the basics of trading verticals, the Almighty of option trading
English Let's say we believe the stock price of Priceline is going up and we're using Priceline because it's an expensive stock. If we believe Priceline stock is going up here's our available investment choices. We can buy or sell stock buy or sell calls or buy or sell puts. So if we believe the stock price is going up what should we do. Well if you pick these three things you're learning there are three ways we can make the investment if we believe a stock price is going up we can buy stock we can buy a call option or we can sell a put option. So why might we choose one strategy over the other. So here's Priceline and here's the last price of pricing right here. ($1,145.50) One thousand one hundred forty five dollars and fifty cents. So if we buy one share of stock that's what it cost us ($1,145.50) one thousand one hundred forty five dollars and fifty cents. Obviously a very expensive stock but let's say we want to buy 100 shares of stock. I think you see where this is going. One hundred shares of stock is going to be 100 times that price and it's going to be almost a ($114,500) hundred fifteen thousand dollars for 100 shares of stock. Yeah ouch. That's a lot of money. But what other choices do we have if believe the stock price is going up. Well remember we can also buy a call. So let's look at that. We're going to go here and we're going to buy a call. And for now we'll see why later. But we're always going to buy the call that's directly below where the stock price is. So in this case we see the stock prices of $1,145.50 and the closest call I can get to below that is 1145. It's only 50 cents below. So that's what we're going to choose to do. And on this software it's broken out a little differently this software that's the bid price. This is the ask price and here's the mid-price and what do we like to buy or sell things that we like to buy or sell things at the mid-price right. We don't want to pay too much for something. So you can see the software defaults to the high price. We're not going to fall for that trick. We know the mid-price is $47.40 and that's what we're going to pay that's what we're willing to pay for it. So we're going to go over here to where the price is and forcibly put in $47.40. Now let's take a look at this option. So now we're buying one Priceline option. We're buying the 1145 call price remember because it's directly below where the stock price is and you see here we've typed in it's $47.40. But here's the important thing to remember and this is where it comes into play. What have we learned about one option. What does one option equal. Well we know now equals 100 shares. But up until now it hasn't meant much to us. But now it should because what that means is if $47.40 is the per price share then the actual price of the option is going to be 100 times that because it's a hundred shares. So one call option in Priceline is actually ($4,740) four thousand seven hundred forty dollars. Very important to remember every trade software is the same. Whatever number you see on the trade page is just the per share price. But remember one option equals 100 shares. So we're always going to multiply that per share price by a hundred to get the actual price of the option. So in this case one call option in Priceline is actually ($4,740) four thousand seven hundred forty dollars.