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What Are Stock Options - Online Essays

What Are Stock Options


You buy or trade stocks, bonds and mutual funds. Some investors use options on stocks or cash indexes to protect and insure the value of their portfolios. A major advantage of options is their flexibility.
 You can protect stock holdings from a decline in market price
 You can increase income against current stock holding
 You can prepare to buy a stock at a lower price
 You can position yourself for a big market move even when you don' t know which way prices will move
 You can benefit from a stock price rise without incurring the cost of buying the stock outright
Stock options work much like stocks, options can be used to take a position on ...

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is the right, but not the obligation, to buy or sell a stock (or other security) for a specified price on or before a specific date. A call is the right to buy the stock, while a put is the right to sell the stock. The person who purchases an option, whether it is a put or a call, is the option "buyer." the person who originally sells the put or call is the option "seller."
Options are contracts in which the terms of the contract are standardized and give the buyer the right, but not the obligation, to buy or sell a particular asset at a fixed price (the strike price) for a specific period of time or until expiration. To the buyer, an equity call option normally represents the right to buy 100 shares of underlying stock, whereas an equity put option normally represents the right to sell 100 shares of underlying stock. The seller of an option is obligated to perform according to the terms of the options contract-selling the stock at the contracted price for a call seller, or ...

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traded) and European-style options possess different regulations relating to expiration and the exercising of an option. An American-style option is an option contract that may be exercised at any time between the date of purchase and the expiration date. An European-style option (used primarily with cash settled options) can only be exercised during a specified period of time just prior to expiration.
With call options the buyer of an equity call option has purchased the right to buy 100 shares of the underlying stock at the stated exercise price. The buyer of one XYZ June 110 call option has the right to purchase 100 shares of XYZ at $110 up until June expiration. The buyer may ...

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PAPER DETAILS
Added: 3/7/2007 01:11:31 PM
Category: Miscellaneous
Type: Premium Paper
Words: 1328
Pages: 5

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