Purchasing Stock and Options

You have researched a company, funded your brokerage account, and now you have to learn how to buy stocks and stock options! Stocks are the easier of the two to understand and to purchase. A stock is basically a very small ownership stack in a public company. You can buy 1 share of stock and be a minimal owner because publicly traded companies issue millions of shares. Companies sell millions of shares of stock through an initial public offering (IPO) to raise money for investment and growth.

Stocks are bought and sold very easily through your brokerage account such as the Robinhood app or through traditional means such as a stock broker. Brokerage apps give retail investors the power to buy and sell quickly without high commission costs or trade fees. E*Trade is the brokerage app I use, and is a little more complicated that Robinhood, but less boomerish than TD Ameritrade. To buy a stock the buyer has to know the stock ticker which is usually a few letters that represents the company’s name. GameStop’s ticker symbol is GME, whereas Apple’s ticker is AAPL. There are a few options to buying a stock, but the most common is to buy at market rate or at limit. Market rate is buying the stock at the current real time price and limit is setting a purchase price on the stock and hoping that the market price reaches your desired limit.

Options are a whole other animal to figure out and it generally reserved for the seasoned trader. Option are contracts that are bought and sold with the ability to buy a stock at a specific price anytime during the duration of the option ownership. Also, 1 option represents one hundred shares of that company’s stock at the specific price. The stock price in the contract is called the strike price. If you desire to exercise your contract you get the stock at the strike price. Another nuance of the option is you have to set the option expiration date. An investor cannot keep the contract forever, but must sell the contract, exercise the right to buy the shares, or simply let the contract expire. Option contracts are usually cheaper to buy than actually owning the stock, although there are opportunities to make more money quicker or lose money faster! Also, options are just contracts, whereas stocks are actual assets that can be held for very long periods of time.

Are you a stock trader, options trader, or both? What strategy do you have to make income? Feel free to comment and let me know what you think!

Jump back to the previous blog post!

Copyright – E*Trade

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