Understanding the Most Common Stock Options Basics
A stock option is a benefit that allows someone to purchase or sell shares in a business.
The price of each share may be discounted below the going rate.
Also, the cost is something that is fixed for the life of the option.
Here is important information on the two most common stock options basics explained.
When you receive an option it just that.
In other words, you have the right to buy or sell shares in a company.
However, you are under no kind of obligation to purchase or sell anything.
You also will not have to sell or purchase a minimum amount of shares.
This is a very important feature of this type of option, as most investments like this require some kind of purchase.
The two main types of stock options are "calls" and "puts" It is important to know and understand the difference between each option.
The first option to examine is the call option.
If you place a call option, you are agreeing to purchase certain stocks in the future at a set amount per share.
Here is an example.
You may agree to purchase 50 shares of Company Z for five dollars per share.
Five dollars is known as a strike price, and your agreement will have an expiration date.
At the end of that date, the offer expires and you cannot buy any shares.
However, you are also not obligated to buy shares at any time.
Yet you do pay a fee or premium for the option.
The put option works differently than a call option.
The term "put" means to sell.
If you purchase the put option you are agreeing to sell company shares that you have for a set price.
This deal has an expiration date just like a call option.
If you are the buyer of the put option you are under no obligation to sell the shares.
If you decide on selling the shares, the other party or writer is obligated to buy them at the predetermined price.
For example, you may purchase shares with the belief that the price will fall in the future.
Suppose you make the put option for 100 shares of company Z for $25 per share.
You agree to sell these shares to the other party for $20 a share.
The writer pays you a premium of $5 per share, and this is not refundable.
If the price falls to $10 a share before the expiration date, you will buy the 100 shares at $10 each from the exchange.
You then may exercise your put option by selling the 100 shares for $20 each, making a profit of $10 per share.
In conclusion, stock options basics concern the two main types.
A call option is a right to sell shares at a set price.
This right is paid for with a premium.
The put option is the right to sell shares at a certain price.
There is never any obligation to fulfill these options.
This procedure can involve a great deal of risk and reward.
Be sure that you completely understand the risk before you decide on this type of investment.
The price of each share may be discounted below the going rate.
Also, the cost is something that is fixed for the life of the option.
Here is important information on the two most common stock options basics explained.
When you receive an option it just that.
In other words, you have the right to buy or sell shares in a company.
However, you are under no kind of obligation to purchase or sell anything.
You also will not have to sell or purchase a minimum amount of shares.
This is a very important feature of this type of option, as most investments like this require some kind of purchase.
The two main types of stock options are "calls" and "puts" It is important to know and understand the difference between each option.
The first option to examine is the call option.
If you place a call option, you are agreeing to purchase certain stocks in the future at a set amount per share.
Here is an example.
You may agree to purchase 50 shares of Company Z for five dollars per share.
Five dollars is known as a strike price, and your agreement will have an expiration date.
At the end of that date, the offer expires and you cannot buy any shares.
However, you are also not obligated to buy shares at any time.
Yet you do pay a fee or premium for the option.
The put option works differently than a call option.
The term "put" means to sell.
If you purchase the put option you are agreeing to sell company shares that you have for a set price.
This deal has an expiration date just like a call option.
If you are the buyer of the put option you are under no obligation to sell the shares.
If you decide on selling the shares, the other party or writer is obligated to buy them at the predetermined price.
For example, you may purchase shares with the belief that the price will fall in the future.
Suppose you make the put option for 100 shares of company Z for $25 per share.
You agree to sell these shares to the other party for $20 a share.
The writer pays you a premium of $5 per share, and this is not refundable.
If the price falls to $10 a share before the expiration date, you will buy the 100 shares at $10 each from the exchange.
You then may exercise your put option by selling the 100 shares for $20 each, making a profit of $10 per share.
In conclusion, stock options basics concern the two main types.
A call option is a right to sell shares at a set price.
This right is paid for with a premium.
The put option is the right to sell shares at a certain price.
There is never any obligation to fulfill these options.
This procedure can involve a great deal of risk and reward.
Be sure that you completely understand the risk before you decide on this type of investment.
