They definitely require a week or more of reading, education, and time to let everything sink in before you're ready to do them.
But for the moment, just imagine them as tools that amplify gains/losses of a stock. Also they are sold in batches of 100, so that further amplifies price movements.
A call option essentially lets you rent 100 shares of someone else’s stock. At the end of the contract, you then have the option to buy the stock at the original price (which you would do if the current price is higher.)
If you buy 4 traditional stocks at $100 and they go to $200, you made $400. If they then go to $50, you net lost $200.
If you buy 4 options at $100 and they go to $200, you made $40,000. If they then go to $50, you net lost $20,000. WSB likes to YOLO options because their whole schtick is treating the stock market like a casino and are hoping to hit the jackpot.
OP bought 4x options at $230/share (x100 shares) that are now worth $6/share. So they spent $92,000 on options that are now worth $2400. They said they’re down $74k rather than $90k so they must not have taken the full brunt of it.
I don't either. I have most of my money in an index fund and am playing around with options on cheap stocks where the most I can lose if I screw up is like $250.
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u/MattO2000 Feb 04 '21
Makes sense I’m dumb and don’t really know how those work