ANSWERS: 2
  • Here are the basics for stock options as they are granted to employees: Some companies, particularly startups, will offer stock options to their employees. These options will typically come with a strike price and a vesting schedule which you will need to pay close attention to. The vesting schedule determines how quickly you earn your options. Most companies will have a schedule that allows you to earn your options gradually over several years, thereby encouraging you to stay longer so that you will have more stock options. The strike price is a predetermined price that you can pay if you decide to "execute" the options, i.e. to buy stock in the company. Let's say your strike price was $1.00. If the company's stock is worth $10.00, you can pay $1.00 for each share, and then, if the company is public, you can turn around and sell the stock for $10.00 each, realizing a $9.00 profit on each share. If the stock's value is less than $1.00, there is little reason to buy it, because you cannot sell it for a profit. Also be aware that you will be taxed on any profit you make from these sales. In summary, an option gives you the right to purchase a share of stock at a certain price. You must determine when, or if, you actually want to purchase those shares. Most option agreements also have an expiration date - if you do not exercise your options by that date, you give up your right to purchase those shares.
  • Without going into a long, drawn-out explanation, here’s a very basic answer. Not all companies have options, which are also known as “stock options”. Options are derived or come from stocks. They are known as “derivatives”. Due to the fact they are derived from stocks, their price follows that stock’s price. They are traded in “contracts”. 1 contract = 100 shares of that company’s stock. That price you see for those numbers, is a shortcut the folks in the investment world use. If you multiply that number by 100 for the number of shares in one contract, that’s how much the trader or investor pays for that one contract. EXAMPLES: 7 X 100 = $700 for one contract. 2.6 X 100 = $260 for one contract. .4 X 100 = $40 for one contract. 364.20 = $36,420 for one contract – of Google. Options provide traders and investors to “get more bang for the buck”. They MAY BE priced about 10% to 20% and higher of what one share of a company’s stock may be bought or sold for through an on-line broker or full-service broker. Options provide the trader/investor “the right, but not the obligation, to buy 100 shares of that company’s stock at a certain price [the strike price] on or before a certain date [the 3rd Friday of each month is the expiration date for that month’s options]”. Just as a stock’s price rises and falls, an Option’s price rises and falls – following the rise and fall of that company’s stock. Unlike stocks, options also lose value over time. The closer options get to “expiration Friday”, the quicker those options lose value. When “expiration Friday” arrives, at the end of the trading day, the great majority of options expire worthless. When a trader/investor expects a company’s stock to go up, the investor/trader buys [or sells] “Calls”. As it was explained to me: When you expect the stock to go up, you pick-up the phone to make a Call. When a trader/investor expects a company’s stock to go down, the investor/trader buys [or sells] “Puts”. As explained to me: When you expect the stock to go down, you finish the conversation and “Put” the phone down. As far as actually finding out how they work for you OR against you - the trader/investor: Basically, options have three positions: 1. In The Money [“ITM”]: When the stock’s price is less then the option’s Strike Price. 2. At The Money [“ATM”]: When the stock’s price is at or about the same price as the option’s Strike Price. 3. Out of The Money [“OTM”]: When the option’s Strike Price is higher than the stock’s price. THIS IS NOT SPAM. I’m not connected to any of the officers or employees who operate this site. I don’t have anything to gain or lose by suggesting the following site. The following site is ONLY for educational purposes. There is A WHOLE LOT MORE information to learn about options. You can do this by going to a free site: http://optionseducation.org Basically, that site “spoon feeds” those folks interested in learning about options and how they work. Thanks for asking your Q! I enjoyed answering it! VTY, Ron Berue Yes, that is my real last name! Sources: My wonderful family! My wonderful coaches and mentors! TWO [2] of THE ABSOLUTE BEST, MOST wonderful trading groups in the world, which I am most proud to be a member of! Trading stocks and options more than 2 years. "THE University of Hard Knocks"

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