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URL:  https://boards.fool.com/an-option-is-a-promise-to-sell-or-buy-at-a-fixed-12345379.aspx

Subject:  Re: Options Date:  4/5/2000  12:15 PM
Author:  mikeburris Number:  621 of 2244

An option is a promise to sell (or buy) at a fixed price in the future. A "put" means that you will sell, a "call" means you will buy. To make it practical. . .

You sell a put, due next month, and the share price is $100. If the stock drops during the coming month, then you *have* to sell it to them on that date at a price higher than the market price - bummer! You make more money than anyone else on this stock!

On the other hand, if the price rises, you have to sell it to them at a price lower than the market value, and they can immediately turn around and sell their cheap share at market price and make money - money you've missed out on.

The *really risky* part of this is that options traders don't neccessarily own shares of the stocks they are trading options on - they will buy them shortly before the option expires. That means that they are in for quick gains *and losses* as options expire.

To recap - you sell an option (a put or call) for money. You hope that the stock dosen't go the wrong way, so that the profit from selling the options plus the money from going through with the transaction results in total profit. Needless to say, that is not always the case. You've made a Foolish decision to forego the possible risk and profits. Congratulations!

If this dosen't make sense, I apologize - options are pretty tricky to understand, much less explain.
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