What are the main differences between options and stocks?

The main differences between options and stocks are as follows:

1. **Ownership and Control**:
- **Stocks**: Represent shares of ownership in a company, giving investors a stake in the company's equity. Stockholders have voting rights and may receive dividends.
- **Options**: Do not provide ownership or voting rights. They grant the holder the right, but not the obligation, to buy or sell a specified quantity of an underlying asset at a specified strike price.
2. **Risk and Reward Profile**:
- **Stocks**: Offer high-risk, high-reward potential. The value of stocks can fluctuate significantly, and they can be held indefinitely, potentially providing long-term gains.
- **Options**: Amplify risk and reward even further. The value of options can increase substantially if the underlying asset's price moves significantly, but it can also decline rapidly.
3. **Leverage**:
- **Stocks**: Do not provide leverage. Investors must purchase the entire share to gain exposure.
- **Options**: Allow for leverage, enabling significant exposure to stock price movements without full investment in the stock. This leverage can be a double-edged sword, as it can lead to substantial gains but also rapid losses.
4. **Term and Expiration**:
- **Stocks**: Have an indefinite life, existing as long as the company exists.
- **Options**: Have a fixed life, expiring on a specified date. The value of an option tends to decline over time, making it a wasting asset.
5. **Value Determination**:
- **Stocks**: Their value is based on the underlying company's financial performance and market conditions.
- **Options**: Their value depends on the interaction of several factors, including the underlying asset's price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option.

In conclusion, while stocks represent shares of ownership in a company, options are contracts that provide the right, but not the obligation, to buy or sell an underlying asset at a specified price and time. They amplify risk and reward, offering leverage and flexibility but also complexity and potential rapid loss.