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Definition stock options

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definition stock options

A stock option is a privilege, sold by one party to another, that gives the buyer the options, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period of time.

American options definition, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the definition date of the option. On the other hand, European optionsalso known as "share options" in the United Kingdom, are slightly less common stock can only be redeemed at the expiration date.

The stock option contract is between two consenting parties, and the options normally represent shares of an underlying stock.

A stock option is considered a call when a buyer enters into stock contract to purchase a definition at a specific price by a specific date. An option is considered a put when the option buyer takes out a contract options sell a stock at an agreed-on price on or before a specific date. The idea is that the purchaser of a call option believes that the underlying stock will increase, while the seller of the option thinks otherwise. The option holder has the benefit of purchasing the stock at a discount from its current market value if the stock price increases prior to expiration.

If, however, the purchaser believes a stock will decline in value, he enters into a put option contract that gives him the right to sell the stock at a future date. If the underlying stock loses stock prior to expiration, the option holder is able to sell it for a premium from current market value. The strike price of an option is what dictates whether or not it's valuable.

The strike price is the predetermined price at options the underlying stock can be bought or sold. Call option holders profit when the strike price is lower than current market value. Put option holders profit when the strike price is higher than the current market value. Employee stock options are similar to call or put options, with a few key differences. Employee stock options normally vest rather than having a specified time to maturity. This means that an employee must remain employed for a defined period of time before he earns the right to purchase his stock.

There is also a grant price that takes the place of a strike price, which represents the current market value at the time the employee receives the options. Dictionary Term Of The Day. A statistical technique used to measure and quantify the level of financial risk Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin?

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Stock Options Explained In 2 Minutes

Stock Options Explained In 2 Minutes definition stock options

2 thoughts on “Definition stock options”

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