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Marathon Man 1990/92 2006/08 | What are stock options- are they good to have? |
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zman492
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There are two types of stock options and I am not sure which you mean.
The first type is employee stock options. These are awarded to an employee of a company as part of his compensation plan and give the employee the right, but not the obligation, to buy a number of shares of stock in the company for a specified price for a specified time in the future. These shares are sold directly by the company. Employee stock options can make you rich if the company does very well or can be worth nothing if it does not expand. The primary time they would not be good to have is when you reduced your monetary compensation to receive options and the options end up being worthless.
The other type of stock options are exchange traded options. These are contracts you buy and sell from an exchange through a brokerage account. Like other investments, they are good when you make money from them and bad when you lose money from them. For a good introduction to this type of option I suggest you take the free Options Overview tutorial at
http://www.cboe.com/LearnCenter/Tutorials.aspx
if you this is the type of options in which you are interested. The tutorial will do a far better job of explaining these options than you will get from an answer in this forum. |
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Narach I
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Options contracts would be good to have as long as they are applied as an insurance instrument to protect the value of a portfolio of stock positions.
It would be inappropriate to attempt applying these contracts as a replacement to purchase of stocks. As here you are hoping that the underlying stock or index would move up (call option) or down (put option) during the tenure of the options contract you are holding. However, Mr Market may choose not to oblige your hope.
Sincerely,
Akash
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pmbraam
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A stock option gives you the right (but not the obligation) to buy or sell stocks on a preset date against a preset price. That date is called the strike or exercise date, and that price is called the exercise or strike price.
There are two types of stock options: put options and call options.
Call options give you the right to BUY the underlying stock for the strike price at the strike date. Put options give you the right to SELL the underlying stock at the strike date for the strike price.
Of course both types of options have a buyer and a seller. The seller is also know as the writer and he is called to have the SHORT position in the option (call or put). The buyer (you) has the LONG position. The one with the LONG position has the RIGHT to sell (put option) or buy (sell option) at the strike date. But he doesn't have to. The one with the SHORT position is OBLIGED to buy (you sell, so it's a put option) or sell (you buy, so it's a call option) if the other party decides to exercise the option. So to summarize there are four 'types' of stock options:
- long call option
- short call option
- long put option
- short put option
A stock option, whether it is a call or put option can be used as an insurance against change the prices of the underlying stock.
Consider this:
If you buy the stock itself you win if the price of the stock increases, but you loose if the price drops. If you buy a call option, you have to right to buy the stock at a preset price somewhere in the future. Now say that strike price is 100. At the strike date the actual price is 110. That means that you can buy the stock for 100 by means of exercising the option. You can then sell that stock right away for 110, making a profit of 10. If the actual is 90, you would loose 10 if you'd own the stock. But you don't. You have an option to buy. So, since it is an option, you don't buy and you loose nothing (except the price you pay for the options, which is very small compared to actual stock price). In financial terms this insurance-actions is called hedging.
The market price of the OPTION (not the stock itself) depends on the expectations of the market price of the underlying stock. That means that the price of options can fluctuate alot. So to buy the options alone might be dangerous, but to buy them together with stock (as a hedging tool) can be very wise. |
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J T
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stock options are often given by companies to managers and others. they might say you have an option to buy 100 shares at 15 dollars per share and that expires next year. at any time between now and next year you can buy those shares at that price, even if the market price raises to 150 dollars per share. you can make a lot of money that way, but be sure to immediately sell what you have bought so you are not loaded with company stock. buy them when you can make money, but then sell as early as you can at the market price so that you can put the money to pay down your high interest debt or invest in mutual funds. |
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kanu
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i think at this moment u should invest in stock market as ours sensex is continuously downing rather than invest in sensex u can have better option to choose FDs in banks , |
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Cold Truth
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2 risky |
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Unbiased.co.uk Find an IFA
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Stock options are basically shares in a company that are made available for employees to purchase on preferential terms. Good employers offer such schemes to their workforce to reward loyalty, incentivise performance and also are used as benefits to attract quality recruits. The schemes usually have lock-in periods of a number of years over which the employee has to hold on to the shares albeit that they can then purchase or sell at a "discounted" and pre-agreed price. People working in organisations who offer stock options should make sure they consider taking advantage but need to read the full terms and conditions first!
Disclaimer:
The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find and IFA please call 0800 085 3250 or go to http://www.unbiased.co.uk.
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Ja Ma
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options are like futures where the buyer pays the seller a "premium" to acquire the right to renege. buying stock options is like buying insurance. you pay to get rid of risk. if you buy a call option at strike price of $20 and the market price at expiration is $22, you will receive $2 from the seller and if the price is $18 you will receive nothing but you will lose the option premium you paid. if you buy a put option at strike price of $20 and the market price at expiration is $18 you will receive $2 from the seller and if the price is $22 you will receive nothing but you will lose the option premium you paid. unlike futures you don't have to go through with the contract if the price moves against you when you buy an option. if you sell an option, you are taking the risk that the buyer is getting rid of. option writers make money when the seller does not exercise the option. writing options is a risky game and not for individual investors. |
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