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What's the Difference Between Stocks and Options?

Mar 27, 2008
In stock trading, it is common to see that there are various terms and without a proper definition of these terms, it is possible to use them interchangeably with the users assuming that they mean he same thing when in actual fact they do not. But before we go into the details of stock and stock options, the stock market has to be examined closely.

The stock market is a structure or medium through which sellers of stocks and the buyers of stock converge to carry out the transaction of stock buying and selling. The important personnel necessary for the execution of these transactions are the buyer, the seller and the broker. However, the broker may not be necessary if the seller has access to a buyer by himself. But before selling, the seller needs to be able to stipulate the right price at which his stock should be sold.

The disadvantage of this is that the sellers do not have an idea of the minute to minute price fluctuations in the market. Besides, the choice has to be from the number of stocks in their possession. Thus, if an investor can lay a hold of the various selling rates of each stock in his possession, he would then be able to sell profitably.

Now that the stock exchange and its workings have been explained, what can we say is stock? Stocks are a combination of all the shares in different companies that an investor or trader has. These stocks are usually gathered by investors for the purpose of either building a long term investment portfolio or by trading in the short term for quick profits.

On the other hand, stock options are the various stocks that an investor has at his disposal at the time of selling. Someone involved in selling a stock option has knowledge of how much it would sell based on technical analysis within a time frame. Within this period, he is expected to have sold the stock or consider it useless. Thus the major difference between stock options and stock in itself is that in stock, you are buying a part of the company while a stock option only allows you to own a certain share of the company for a certain period of time during which the investor ought to have divested himself of it at a certain stipulated price.

In stock option trading an investor plays against other people, therefore making it a winner-loser game. A winner profits from the loss of a loser in the game. While stock trading is more like a gamble in that the investor is playing to win in the nearest future.
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