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What is the difference between trading stocks versus options?


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Trading in options, when compared to stocks, is different in many ways like-

  • Time- Options have an expiration date within which you can trade in it. All options expire on the expiration date. Stocks don’t have an expiration date and can be held for years. For example, if you buy or sell Nifty May 31 Option, it will expire on May 31st whereas if you buy Reliance shares you can trade it anytime or hold it for several years.
  • Delivery- In options, there is no delivery. All transactions are settled in cash. In stocks, you get delivery of the stocks in your demat account. For example, if you buy an Option and if it is at profit on expiration date then you will get the profit amount credited to your account. You will not get delivery of the underlying. In case of stocks, you get the traded quantity of stocks added to your account.
  • Investment Capital: In options, you pay a fraction of the actual amount of the traded. This amount is called premium. In stock trading, you have to pay the actual value of the shares. For example, you want to trade in 100 shares of SBI currently trading at Rs 280. In options trading, you can buy an SBI option for a lot of 100 shares by paying a premium of Rs 10 per share or even less depending on your strike price. So your investment capital would be Rs 10 X 100 shares = Rs 1000. If you trade in stocks, you have to pay Rs 280 X 100= Rs 28000.


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More Options Trading Basics Questions...

  1. How do options work?
  2. What are the different types of options?
  3. What is the strike price of an option?
  4. What is the Expiration Day of Options?
  5. How do I trade options?
  6. What is the difference between futures and options?
  7. How is Nifty traded?
  8. What happens if an option expires out of the money?
  9. Is there any Margin payable in Options?
  10. How does options settlement work?
  11. What are Covered Options?
  12. What are Naked Options?
  13. What is an American Option?
  14. What is an European Option?
  15. What is In-The-Money (ITM), At-the-money-option (ATM) and Out-of-the-money-option (OTM) in Options?
  16. How to decide on whether should I buy or sell Call or Put options?
  17. Can I trade on options of any stock or Index?
  18. What is the difference between square off and exercise an Option?
  19. What is intrinsic value of the option? How to calculate intrinsic value of an option?
  20. What is time value of an Option?
  21. What are moving averages in options trading?
  22. What is Assignment in Options?
  23. How are options different from futures?
  24. What are the factors that affect the value of the premium of an Option?
  25. What are different pricing models for options?
  26. How the premium paid on options is calculated?
  27. What are Option Greeks and its use in Option trading?
  28. What is shorting/writing/selling in Options trading?
  29. I have bought an option & paid the premium for it, how to settle it?
  30. Do Option buyers have the same rights that as stock buyers?
  31. What is the contract cycle for Options in India?
  32. How does the probability of price movement affects the price of an option?
  33. What is the difference between trading stocks versus options?
  34. What is open interest and volume in options?
  35. What is the options market?
  36. What is nifty futures and options?
  37. What is an option trade?
  38. Is binary options trading legal in India?
  39. What are different types of exotic options?
  40. How to trade nifty Options intraday?
  41. Can I trade in US options from India?
  42. What are options trading hours in India?
  43. What is NSE option expiry time?
  44. Can I buy/sell Options in pre-market trading session?
  45. What is call & put option in bank nifty?
  46. What is the difference between selling a call option and buying a put option?
  47. What is NSE F&O lot size?
  48. What are options trading advantages?
  49. What is options trading after hours?
  50. What are options trading charges?
  51. What are options trading exchanges in India?
  52. What is the difference between options trading and Forex trading?
  53. What is the difference between options trading and stocks trading?
  54. What is the minimum amount required for Options trading?
  55. What are Index Options?
  56. What are weekly Options?
  57. What are Long Dated Options?
  58. How to identify if a particular option contract is American or European style?
  59. What are Option contract adjustments?
  60. Why The Intrinsic Value Of Options Contracts Can Never Be Negative?

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