 There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet or discuss your trading ideas with other reputable investors, click the link below and get connected with the trading mentor today, completely free of charge. Hey guys, this is Hydro from Xtrades and in this video we're going to break down the key differences between stocks and options. Alright, so let's get into it. With stocks, you have part ownership of the company. So if I'm buying Apple shares, then that means I am a part owner of Apple, right? With options, you don't have that because you don't actually own any shares. Options is more like trading, short term trading. So you're basically just trading numbers and you don't actually have any ownership of the actual company. So that's the key difference. Second thing with stocks, there's no time limit. So I can buy a stock and then I can hold it for a minute or I can hold it for a year. With options, there's a set in date expiration date and yeah, so there's a date where the option expires and there's nothing you can do about that. So you can only hold it for a limited time. That's a key difference. And then another key difference is that with stocks, you have more potential for or with options you have more potential for making a higher risk or a higher return trade but it's also a higher risk. And with stocks, it's lower return but also lower risk. And so yeah, let's get into that actually. So with Apple, let's say you buy Apple. So let's say Apple is trading at 135 and you can either buy 100 shares of Apple or you could buy one contract of Apple. So let's say you buy 100 shares of Apple and Apple ends up closing the week at 139. So it goes from 135 and then it ends on the week at 139. So if you sold it at the end of the week, you would have made a $400 profit because you're buying 100 shares, right? So 139 minus 135 times $400 profit with stocks, right? And if you did that with options, so let's say you bought a 140 C contract. So this is a weekly contract expires on the Friday. So the option contract did go in your way because the stock went from 135 to 139. But let's say that you let it expire and since it expired below the strike price, so the strike price is 140 and it expires below the stock price, the strike price. So this $35 that you spent on the option contract goes to zero, right? If that happens, you basically take a full loss on your option contract and so you lose the $35. This is pretty weird though, right? Because the stock still did go in your way, went up $4 but since it closed below your option or strike price, it ended up being worthless. So that's a very big risk with options, right? It's very easy to lose money. So even though it went in your way, you still ended up losing your complete capital on that trade, right? Versus shares, you ended up actually making us only 2.9% and yeah, that's not bad, right? So you ended up making, coming out $400 in the green. So this is a good example of higher risk. So higher risk for options and also lower risk for shares but steady income, right? So if you have a lot of money or if you have a good amount of capital, it would be a good idea to invest in shares or stocks but yeah, keep in mind, this did require $13,500 to buy the 100 shares of Apple, right, and 135. So let's take another example, let's take a look at another example. So let's say Apple is trading again at 135 and this time you buy the same contract, you buy, actually you buy 145, oops, 140, 140 call contract and you buy at the same price again but this time Apple closes at 145, right? So if you bought it with shares, stocks, you would do 145 minus 135, so $10 and then you have 100 shares so that's a $1,000 profit with stocks but let's say you, let's say what would happen to your option contract, right, and go from $0.35 to $5 because it ended up closing $5 above your strike price. So that would be a $5 premium right there. So your 0.35 or $35 turned into $500 so that's a $465 profit with options. You might be thinking, well you still made more money with stocks, right, so put in stocks always be the best option but you have to take a look at the amount of capital that you put in the return that you got. So with stocks you put in $13,500 and you made $1,000 off it and that's a 7.4% return but with options you only put in $35 and you made a $465, you made $465 a profit and that's a really, really big return, right? So this is a great example that highlights why options are so good in terms of like risk reward. You can put a very small amount of capital and make a huge return, right? So yeah this is a good example of why options are higher risk but also higher reward as well and stocks tend to be lower risk, lower reward and if you're starting up I would recommend starting with stocks only just because they're lower risk, right? If you have a good amount of capital and you want to get started in the market I would definitely recommend with stocks just because they're lower risk and then you can get your feet in the water and then once you become more experienced then you can venture into options and even if you are more experienced I would recommend only using options for like the best of the best rates otherwise just stick to stocks and then the last difference is that with stocks you can make money if the stock goes up or down with options you can make money if the stock goes up or down but you can also make money if the stock goes sideways. So there's these strategies called iron condors or butterflies or calendar spreads, things like that, right? With options you have a lot more ways to get creative and make money and yeah that doesn't require the stock to go up or down it can also go sideways. So yeah the key difference there is that with options you can be more creative and find more ways to make money and it doesn't simply have to go up or down. So yeah that's all I got for you guys, yeah thank you guys for tuning in.