The option is kind of a contract or agreement in trading stocks and shares. This is a contract that gives you the right to buy stocks and shares on a specific price and a specific date but you are not obligated to agree to those particulars i.e. time and price but you can trade whenever you want on whatever price you prefer.
Brief Description of the Option to Purchase Stock:
Many people assume that the option and stock is the same thing where in reality, they are very different. When we talk about a stock or share, it gives you a specific amount of ownership in the corporation and you may or may not be able to sell or buy the stocks when you want but you will need to ask other stockholders to agree with your decision where on the other hand, an option is more like a contract that you sign with the buyer or seller and this gives you the right to trade the stocks whenever you want even if the stocks aren’t reached maturity yet or haven’t expired yet. You should also keep in mind that when you buy options, you don’t have any ownership in the corporation and even if you want, you can’t participate in the decision making process of the corporation where other stockholders and shareholders have the right and saying in the above mentioned decision making process.
Types of Stock Purchase Options:
There are dozens of types of options used around the world but two of them are more important and common including the call options and put options. The call options allow you to buy the stock at a specific time with a specific rate where the put options give you right to sell the stocks when you want on a specific date and with specific rate that you want. Other types of options include;
- Equity options
- Future options
- Bond options
- Commodity options
- Currency options
- Index options
- Options on future contracts
- Interest rate options
Different Ways to buy Stock Options:
There are different ways to buy options in the stock market but most commonly, three ways are implemented these days. First, you hold on to the options until they reach maturity which is the end of the contract prior to the expiration of the options and then you can buy the options. Second, you trade the stocks before the contract ends within the expiration date which gives you the upper hand as you can sell or buy the options on whatever price you want. Third and last is when you wait for the expiration to end and then you trade the options. The choice of trading the options depends on the market value of the option and the amount of profit you want to earn from the trading. For example, if you think the price of the option will go down before the maturity period, you can sell the options even if they are not expired yet.
Here is preview of a Free Sample Option to Purchase Stock Notice as Fill-able PDF,
Here is download link for this Option to Purchase Stock Notice,