 Yo, what's going on guys Preston here from Xtrades and today we're going to be talking about how options differ from common stock or shares as Well as the advantages and disadvantages of trading options so the differences are Shares themselves when you buy a share of a stock it gives you a small piece of ownership in That ticker so you buy five shares of Apple that is a small piece of ownership in Apple the company itself Options on the other hand give you the option to buy shares at a certain price for that ticker so You get you buy an options contract you have the option to To buy Apple shares at the price of your contract or at the at the strike price of your contract for Apple so if you have Whatever it is like the strike price of 300 and apples at 500 then you can buy 100 shares of Apple for $300 instead of 500 so Shares have no expiration date. You can hold them for as long as you want. It doesn't matter Just Hold them sell them. It doesn't matter Options on the other hand have an expiration date and by that expiration date You either have to sell the contract or execute it, which means buy the shares And if you hold the contract through expiration, there's nothing wrong with it It just The contract expires worthless And so you would lose all the money that you all the capital that you had in that contract Which doesn't necessarily make sense use either sell a contract make whatever money you have left back or whatever capital or you execute the contract because You are the strike price that your contract is you want to execute and buy the 100 shares At or buy expiration So share price itself is based on the company's evaluation When there's news this the price will go up earnings can drive the price. It's all around Speculation of the company's evaluation or the current company's evaluation like where people think things will go for the company We're on the other hand option price is Based on a multitude of things but for the most part the movement of the share price itself And so obviously there's Greeks, which I'll get into on another video Like time decay implied volatility all these things that Have to do with the options contract price but for the most part It's mainly based off of what this share price does and that's why we do technical analysis to see okay, will the stock be jumping because we want to catch that jump and Not let the option decay because the expiration date comes into play there With time decay where as shares can't decay over time All the only time that your shares lose money is when the company's evaluation or the stock price goes down whereas The stock it's weird, but the stock price say you buy a call option the stock price could be going up but your contract is going down because of a multitude of other reasons that it could be doing that So the advantages of trading options you have greater potential returns because a stock could move Two dollars like the share price could move two dollars and in return your options contract could move like $50 or even more than that and so That's like the kind of high-risk high reward Part that drags people into trading options is that greater potential returns for a smaller move of the share price itself So a small move of the share price in the right direction for you Given the other things that drive a contract price are in your favor. You will See greater returns Options are cheaper to trade than actually buying shares because you think about it when you're trading options you are basically Leveraging in a way because you're you have the ability to buy 100 shares of that stock and so You're getting an options contract for like 100 200 300 dollars That's like a big sum of money We're in you're just getting it for one to three hundred dollars when you're trading like say weeklies that a lot of people will trade and so it's pretty cool in that sense that you could get a contract for a hundred dollars to three hundred dollars and then With some of the contracts that us members at x trades buy it's like You could get double your money in one day or anything like that and that's pretty much unheard of in shares when you're buying shares and As well another advantage is the ability to strategize you can sell contracts You can place spreads to help yourself with the share price going in the wrong direction You could do puts which is when that you make money when the stock goes down Calls you make money when the stock goes up. There's all these different things that you can do With options which you can't necessarily do with stocks Obviously you can short and you can buy shares but the spreads are are Really awesome and selling selling premium or selling contracts to basically make passive income and It's complex when you think about it, but definitely with a good amount of studying It's it's not too hard that no one can learn it and that's one of the great parts about options trading So the disadvantages of options trading with the greater potential gain comes the greater potential loss In the sense that yes options contracts are cheaper to trade but in the same respect They can you could lose just as fast as you win and that's where stop losses come in handy but The options contract can technically go to zero really fast even without expiring worthless I mean, it'll be like 0.01 but They can in the same respect where the stock price goes up two dollars this the contract goes up 200% or whatever it is if the if the share price drops two dollars on a call option then You are down whatever $200 or however much capital you have in that position And so you need to be tight with stop losses tight with taking profit when you're trading options Because it's such a high-risk high reward game and it's a fast game So you always got to be on your toes and make sure all your all your bases are covered So you're not caught with cake in your face I know there's advantage of options is less liquidity I mean, there's ways around that you trade options that have good liquidity you trade tickers with good liquidity that Have good options volume itself but you could in Theory like definitely get caught in a trade like an options trade where there's no buyers Because you're too far out of the money you could be too far in the money where your contract is so expensive like no one can afford it or buy it so You always like think or swim. That's why I mainly use they have You can see the open interest the volume on the contracts and you can see that people are actively trading this people are holding this Contract so you never want to get caught in a jam where you can't sell a contract and then you're forced to just lose your money Um time decay. I went over this already, but It's pretty much just the options contract since it has an expiration date It can expire and there's time decay So an options contract is a decaying asset in essence. So every day the contract is Worth less and less the closer you get to expiration Even though it could be going up in value. There's there's different aspects that go into making the price of an options contract And yeah, that's all I got. So this has been Preston from X trades and thank you for your time