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What is the difference between buying long and buying options?
The short answer is that buying long is a contract that you will pay a set amount of money for a set amount and type of pieces of paper on a particular date, and an option is a piece of paper that gives you the right (but not the obligation) to buy such paper at such a price on that date.
Buying long is like custom ordering a car. You pay a little of the money up front, and the rest of the money when the car is delivered on the agreed on date. The car company is obligated to produce and deliver the car on that date, and you are obligated to pay the balance of the price on delivery.
Buying an option is like getting a supermarket rain check. It gives you a limited right to buy a limited amount of a particular product from that store for a specified price within a specific time. The obligation is one way; they are obliged to sell you that product at that price (if you so choose), but you are not obliged to buy any of it. If you want to, you can just let the rain check quietly expire.
What do you mean, hold them?
While most such pieces of paper are virtual these days, and therefore physically impossible to hold as such, the time between your acquisition of them and your disposal of them (usually by selling them) is still considered time spent holding them. Some of these pieces of paper actually pay you to hold them. Some, like bonds, Certificates of Deposit (CDs), and Treasury Notes (Savings Bonds, T-Bills, etc.), pay you interest for however long you hold them. Others, such as some stocks, pay dividends at certain times in the fiscal year.
How do you sell them?
Your options for selling your pieces of paper are pretty much the mirror of your options to buy them. Depending on the kind of paper it is, you can either sell it directly to the buyer, sell it through an exchange, or sell it back to the issuer (most often a financial institution or the government). You might be able to get full price for it or even barter for it. Depending on the limits described above, you might be able to sell them using leverage, sell short, or even sell an option to buy them later.
What does "selling short" mean?
You sell a stock short when you are sure the price will be going down in the near future. It is making an agreement (which becomes another piece of paper in its own right) to sell a piece of paper that you do not yet have to the buyer on a particular date and at a particular price. Sometime between the time you sell the short contract and the date specified, you have to buy that piece of paper, so you can honor the contract. Sometimes, if the price drops enough, the buyer will sell the contract back to you for less than you were paid. If that happens (and you don't sell the contract again), you don't have to buy the other piece of paper after all.
What are Bubbles?
Sometimes, the process of money chasing money runs away to the point that a sort of irrational exuberance takes over. The prices for the items in question - often, but not always, pieces of paper - increase well beyond any realistic value for the items, and then keep going up. Those involved seem to lose track of the nature of the items themselves,and just concentrate on the price and the flow of money. A sort of hysteria takes hold, sucking more and more people in, more and more deeply. This phase can last a long time, but sooner or later it reaches a point where even those dynamics can't sustain it and the market collapses. The bubble "pops". The prices fall rapidly, with money chasing money out of the market, until they level out at a more sustainable, realistic level.
Vast fortunes have been wiped out when such bubbles popped, especially when overeager speculators had been using leverage to increase their effective investment.
Such bubbles have been happening for hundreds of years. One of the best known of the early bubbles was the Tulip Bubble of 1636. Almost as famous was the Mississippi Bubble of 1719 - one of the early bubbles built around pieces of paper. More recently, there have been a number of real estate bubbles, stock bubbles (such as the Dotcom Bubble), and a number of bubbles built around other pieces of paper.
What does "Money Chasing Money" mean?
It's a common part of human psychology. When people see others making a lot of money doing something relatively easy, they want to do the same thing. And when they see the people they regard as "in the know" getting out of something, they want to follow. That is the essence of money chasing money. It can cover entire areas of investment (real estate, currency trading, commodities, etc.), or narrow down to a specific element (eg. a specific stock), or fall somewhere in between (dotcom stocks, porkbelly futures, etc.). When they see people making money by buying those things, holding them, then selling them for a profit, they do the same thing - their money "follows" that earlier (and presumably more knowledgable) money. And when they see "the money" getting out of that area, or especially selling short, they follow it out as well. Often, the people doing the following neither understand nor care about the specifics of the pieces of paper they are buying and selling.
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