SHARETIPSINFO >> Articles Directory >>Stock options – get the right one
A stock market is a huge market for the trading of stocks. It is a huge and open market also known as an equity market. A stock market facilitates the trading of stocks and derivatives at a consented to price. It is a humongous network of multiple economic transactions. It does exist as a physical entity itself. But, yes, all the stocks that belong to any company are listed on a physical entity or exchange known as the stock exchange.
Stock Options – What are they?
The term stock option may be utterly confusing in the way it is used. It is broadly used to define either of two very different theories or rather, conditions, which in themselves have nothing much in common with each other except that they both pertain to or relate to the share market.
The first definition pertains to accepting stocks as part of your salary package. If you are an employee at a company or corporate entity, it is normal for you to get stock options as part of your salary. An option is nothing but the right to buy stocks in an entity at a fixed value after a certain period of time. Many big companies offer this and many employees happily accept and explore this option. But there is a big factor to stock options - Timing. Get the timing right and you will see your compensation package growing many folds compared to that of your peers! Get it wrong and you end up a poor man. So consider the ever important factor of timing.
I am going to the other definition of stock options now – the more ‘applicable’ definition if I might say so! Options are nothing but derivatives. They are called so because they derive the value of the asset that they represent. By getting hold of an option the ‘buyer’ buys an option to either buy or sell any related asset (in part or in full) but is not obliged to do so.
There are, broadly speaking two types of stock options:
The Call Option
The call option is one which gives the buyer the right to buy the related asset (in part or in full) but is not obliged to do so.
The Put Option
The call option is one which gives the buyer the right to sell the related asset (in part or in full) but is not obliged to do so.
Now the common question in anybody’s mind would be: “How do we value a stock option?” The answer is simple: the value of an option (though theoretical) is calculated based on various propagandas and conditions. The models are developed by people known as quantitative analysts. Such models try to forecast how the value of an option changes with respect to changing conditions. Thus, the risks coupled with conceding, possessing, or trading options may be quantized and handled with a higher level of accuracy, perhaps, than is normally the case with other forms of investment. The options that are traded at an exchange make up a vital category of options which have homogeneous indenture tones and are dealt with on public exchanges, enabling trading between self-regulating parties. Over-the-counter options are dealt with between private parties and often billion dollar conglomerates that have taken part in split dealings and defrayal measures with each other.
Also note that there are other types of options as well, as follows:
- Interest rate options
- Bond options
- Futures options
- Commodity options
- Market Index options
- Dealer options
- Swaps
- Stock options for employees (as part of salary: previously defined)
This was a small session about Stock Options – Get the right one. You need to make a good study of the different shares so that you can get the ultimate stocks for you. This would make you more profitable and help you to earn a lot of money from the invested stocks. You should try to clear off all your queries that you might have on your mind so that it does not create you any confusion. So get the best stocks and remain tensed free as you would get good profits from it.
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