The hardest thing to wrap ones head around is: when an option is bought, one is not buying the stock.
"What is one buying then?"
It's like a layaway plan,.....you are waiting.....YOU MAY WANT TO BUY IT LATER WHEN IT PROVES ITSELF!.... When you purchase an option, the stock is waiting for you,....when you are ready, you can purchase the stock for the pre-agreed upon price from the seller of the option! Until that time comes ........ the option seller is holding it, waiting, for that fateful day when you will rip it out from under his feet! (being overly dramatic here).
One is buying a promise, a contract, an agreement from the seller....the seller keeps ownership of the stock....until you decide you want the stock and then he must sell it to you.
"Why not buy the stock outright, Why pay some jerk and don't even get the stock?"
Because one can lock in the price now and buy it later!
"But I can buy it later anyway without buying an option."
That's true but not at a locked in price, one would have to pay the current price! When the option was purchased earlier the price was set!
....OK, that's it.....if you want to know more contact me or leave a comment.