lottery options

I have found that the best teachers bring forth the most complex ideas in the most simplest of ways. Today, I learnt a new way of explaining options in layman terms!

In its simplest of forms, an option could be described as a financial lottery ticket.

You pay money(option premium, assuming that your are going long, ie buying an option) for the potential to earn more money(potential upside).

I felt enlightened when i saw it being put forth from such a different angle as it had almost nothing to do with investments or finance!

But as the wise Charles Handy puts it, "when we walk in alien worlds, we see things afresh or see fresh things."

The difference would be that lottery would be along the lines of gambling and based on pure chance while options are TYPICALLY entered because we have formed an informed view regarding the market movements of the underlying financial instrument based on market research/analysis or even 'fish market rumours'.

For in depth info on gambling and investment read here!

And lastly, I would love to share with you an interesting article brought to my attention from Ms Mabel regarding new terms that have cropped up due to the state of the world financial economy.

" This new era on the sharemarket has thrown up a new dictionary with its own set of words. Let's have a look at the important ones and what it means for your portfolio."