I know there are a lot more complicated things but here. is a basic beginner question about options.

Thanks for any replies.

AMZN is trading at about 310.
If I were buying the stock I would place my stop around 290 which seems to be about where support is.
Thats $20 per share risk. 20 X 100 is $2000. $2000 is my risk for buying 100 shares excluding comissions.

The January 2 310 call is $11
$11 x 100 is $ 1100 This is my total risk in buying 1 call contract.

So it would appear that buying the call is 1/2 the risk of buying the stock. Of course we understand that we could hold the stock and options expire. I am assuming the stock buyer would just exit a losing position at around the same time as experaton.

Is that basically correct? I know it is pretty basic. But one step at a time. I'll get to straddles and other jazz in time.

Thanks for replies

mcteague 

I know there are a lot more complicated things but here. is a basic beginner question about options. Thanks for any replies. AMZN is trading at about 310. If I were buying the stock I would place my stop around 290 which seems to be about where support is. Thats $20 per share risk. 20 X 100 is $2000. $2000 is my risk for buying 100 shares excluding comissions. The January 2 310 call is $11 $11 x 100 is $ 1100 This is my total risk in buying 1 call contract. So it would appear that buying the call is 1/2 the risk of buying the stock. Of course we understand that we could hold the stock and options expire. I am assuming the stock buyer would just exit a losing position at around the same time as experaton. Is that basically correct? I know it is pretty basic. But one step at a time. I'll get to straddles and other jazz in time. Thanks for replies

That's pretty much it. The difference is in the break even. If you buy the stock your break even is the price you paid. If you buy the option your break even is the strike price + the amount paid. And your time value (theta) reduces its value daily...all working against you to reduce your probability of profit.

The solution for me would be to sell a vertical put spread where I risk the 1100$ that I am willing to lose...which would have a higher probability of profit. Maybe wherever I can sell a 5$ wide put spread where I collect at least 1.50$ and do 3 of those. About the same risk with a higher probability of profit.

Remember that stops don't help you much on overnight gaps....If you define your risk at entry you won't need them.