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Am I understanding buying options on stock correctly
Here is a quick and dirty explanation of options. In a nutshell, you pay a certain amount to buy a contract that gives you the right, but not the obligation, to buy or sell a stock at a predetermined price at some date in the future. They come in a few flavors:  I'll give you $100 if you let me buy 10,000 shares of XYZ for $10 more   per share than it is trading at today any time before   August 10th. I'll give you $100 if you promise to buy 10,000 shares of XYZ from me   for $10 less per share than it is trading at today if I ask before August 10th. There are also two main types based on the expiration behavior:  There are lots of strategies that employ options, too many to go into.  Two key uses are.. Leverage: Buying Call options can give you a much higher return on your investment than just investing in the actual stock. However, with much higher risk of losing all of your investment instead of just some of it when the stock drops. Hedging: If you already own the underlying stock, put options can be used to buy down risk of serious drops in a holding.