Options!

I've heard so much about options before but I honestly had no idea what it is. Even now that I've read about it, I'm still a little confused.

At first when I heard about options, I thought it sounds like stock options that you get from a company. Turns out, it's not all that different. Instead of being granted the options, they have to be purchased. When you buy options, you are buying the RIGHT to purchase stock at a certain price (Strike price) with an expiration date.

Expiration date:
American style lets you purchase BEFORE or ON the expiration date
European style only lets you buy ON the expiration date

Call options: You are betting that the stock will go up. So the writer of the stock has to pay you more money than your strike price
Put options: Opposite of call. You are betting the stock will go down

Pro:
You are buying the option not the stock, which is usually cheaper. So you can potentially get a much higher return than what stock can give you.

Con:
If you exercise the option at the wrong time, your loss can be limitless. The expiration date makes it hard to make money.

How to make money:
You can exercise the option if you actually bet correctly OR
You can trade the option. If the option looks good, people will pay more than you did for them. Think Google. Say you bought options at at 100 strike price. You want to sell it when it's 200, but it looks like it'll go up to 400 before the expiration date. Then the option is going to worth more than when you bought it.

Options look pretty cool, but I'm not sure I'm ready for this kind of high risk investments yet.