The primary difference between purchasing stock and buying options on the same stock boils down to one word: leverage. In purchasing 100 shares of a stock at $30 per share, you have to come up with $3000 (unless you have been approved for margin purchases by your broker). With options you can control the same 100 shares, and benefit from a price move that you expect, with much less money. Here’s how:

With the stock at $30 a share you could buy a call option that gives you the right to buy 100 shares of the stock at $32.50, with a few months life left on the contract for-let’s say-a hundred dollars. If you get a price move that you expect and the stock goes to-let’s say-$35 per share, the intrinsic value of the option would be $250, because the right to buy at $30 implies that you could immediately resell at $32.50 and make a $250 profit (100 shares times $2.50).

Of course the problem is that if the stock doesn’t make it to $32.50 before your option expires, it will expire worthless, because a right to buy something at a higher price than the current market price, if there’s no time left on your option contract, is worthless. This is why you hear horror stories of losing everything that one has bet on a given options position. Indeed, this is the downside of leverage generally: with an increased possibility of profit, you also generally take on more risk.

Options are absolutely not for everyone. Even people who have been trading for decades have a hard time making money with stock options consistently. The best advice that I give you, after you get call and put options explained to you properly, is to paper trade for a few months before you commit real money to this volatile and risky investment.

The stock ticker you see seems to have special symbols and odd figures that go by very fast and so you have to know what they mean to be able to read and use the ticker. The symbols, normally a letter or group of letters, represent a company. The numbers next to the letters indicate the number of shares traded and there are arrows which indicate if the stock is trading up or down.

If you have just started learning about how to buy stocks for beginners, the stock ticker is something you will want to get familiar with. It allows you to quickly see the top stock movers every day as those are the symbols that are shown most frequently.

If the stock you see go by on the ticker has three letters or less, then it is on the New York Stock Exchange or the AMEX. If it has four letters it is a stock on the NASDAQ. Overseas firms are also sometimes represented  on the ticker and these are all the time a 5-letter symbol with both a Y or F at the end. Penny stocks will never be listed on a stock ticker as they are not widely traded.

Anybody who wants to start traking stocks should put in some time to learn what things are and mean so that they can better understand what is going on. The stock ticker is one of those things that you need to be understood if you are going to be a stock investor.