Different Types Of Stock Options

Stock is the shares in which ownership of a company is divided into several. In modern English, the words refer to non-voting shares or ‘book’ shares. A single share of stock represents fractional share in fixed ratio to the number of shares existing at the time of issue. The fractional nature of stock provides limited liability to the shareholder.

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Stock options refer to right to buy or sell a certain amount of shares (the’stock’) within a specified time period, generally for a minimum and probable period of one year. Options are financial instruments whereby the buyer of a security can buy or sell part of its outstanding stock without the payment of taxes. Stock options are traded over the Internet, through brokers and with money orders.

The buying and selling of stock is done through brokerage firms, stock traders, stockbrokers and online stockbroker services. Stock investment involves a set of strategies for buying and selling of stocks. The most popular stock trading strategies are ‘long-term’, ‘put-call’ and’re-balancing’. Long-term focuses on long-term trends of stock prices while put-call focuses on short-term fluctuations of stock prices.

Investors buy stocks from stock exchanges via ‘brokers’, who act as intermediaries between investors and corporations. The stocks are listed in the stock exchanges where they are accessible to stock traders, investors and corporate management. The buying and selling of stocks on the stock exchanges is called ‘futures trading’. During future trading, investors buy shares on anticipation of selling them later. Investors usually make money by buying a stock at a lower price and selling it higher, or by holding on to the stock and selling it later.

Short-term trading is the opposite of long-term trading. In short-term trading, a shareholder buys stock options within minutes of a company announcement to sell it within seconds of an announcement. Options are sold in ‘bulk’ either in whole number or in fractional amounts. Investors usually purchase small number of stock options with the intention of selling them at a profit when the price increases.

Dividend entitlement is a right given to stockholders whereby they can dividends their holdings, which are a percentage of outstanding stock. Common stockholders can only dividend their holdings by selling their stocks. If a corporation issues preferred stock, which is different from common stock, then it can issue preferred stock without having to dividend its holders. If an investor holding a preferred membership interest in a company is allowed to sell all or part of his interest in the company, he can sell the interest to other investors. He becomes a member of that company and entitled to dividends. In addition, dividends are a portion of profits.

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