What Are Stock Options?
If you are interested in the exciting world of the stock market, you should be familiar with stock options. This term refers to a limited time contract between buyer and seller. The contract stipulates that the buyer can purchase the specified stock but is not required to, and that the seller must sell the specified stock at the agreed upon price. Of course once the contract expires this agreement is no longer valid. Options trading is nothing new, it is estimated that the first form of options trading took place around 7 BC in Greece, but instead of stocks the commodity was olives.
There are particular ways to define options trading. One is the date of expiration. This is when the contract ends. The option is based on an underlying asset. Then there is the exercise price, also called the strike price. This is the amount for which the asset is purchased or sold if the holder of the option chooses to do so. There is a difference between options in the United States and Europe. In the United States, the buying or selling can happen at any time period during the contract period. In Europe, the option can only be exercised on the date of expiration.
You may hear the term ATM tossed around. This is not an automatic teller machine, at least not in the world of stock trading. This acronym stands for at-the-money, which means the strike price is very close or identical to the current price. Then there is the acronym OTM, or out-of-the-money. This means the price is too far from the strike amount therefore there is no good reason for the options holder to take action on the contract. Finally an ITM, which means in-the-money, is a position that is profitable for the contract holder.
As you can see, stock options allow traders the potential of profit without a lot of risk. Even those new to stock trading can delve into options trading with a little knowledge. There are a plethora of books, newspapers, magazines and even educational courses which can teach even the most clueless individual how to trade. Before you do decide to invest money, make sure you are well schooled in trading. Also, it is a good rule of thumb to never use money you can't afford to lose. That way if you lose money it may be disappointing but not devastating.
| Top Tax Tips From Zuckerberg's Facebook Bonanza The revelation that Facebooks Mark Zuckerberg plans to exercise $5 billion worth of stock options before his IPO suggests his 2012 tax bill could be close to $2 billion! See Zuckerberg's 2012 personal incometax bill: $1.5 billion. If size matters, that will make Zuckerberg The Incredible Hulk of Taxpayers. After all, the 400 wealthiest filers only averaged $48 million in federal income taxes ... |
The Zuckerberg Tax Hugh Pickens writes "David S. Miller writes that when Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth and since the $5 billion he will receive will be treated as salary, Zuckerberg will have a tax bill of more than $2 billion making him, quite possibly, the largest taxpayer in history ... |
Neumann: How to pass stock options to the next generation Stock options were once the bastion of the most highly paid executives. Today, they are given to "everyman.".. |
Exeter Resource Corporation Announces Granting of Stock Options Exeter Resource Corporation Announces Granting of Stock Options.. |
LinkedIn Puts Slip to Record Low as Facebook IPO Lures Back Bulls: Options LinkedIn Corp. (LNKD) options traders are the least bearish ever, speculating Facebook Inc.s initial public offering will keep the stock from falling even as trades at 75 times the valuation of the Standard & Poors 500 Index... |
Zuckerberg tax bill: $2 billion? Facebook's IPO indicates its founder will pay a hefty tax bill for exercising stock options. That income is taxed at the 35% rate, since entrepreneurs don't get the same treatment as investors... |
Options at tax time Taxpayers find tax return preparation confusing. Do you need a tax pro? How about software? Why not just EURdo it by handEUR? Well EUR it depends. I hate that answer. It does depend EUR on your familiarity with software, tax code, and confidence with tax research... |
Zuckerberg May Sell $1.67 Billion in Facebook Stock to Cover Options Taxes Mark Zuckerberg may sell about $1.67 billion of Facebook Inc. stock in the companys initial public offering to pay off taxes he will owe when he exercises options to buy 120 million shares... |
Make Millions More From Your Employee Stock Options The IPOs of Zynga and LinkedIn have created roughly $16.7 billion in market value. Assuming that about 20% of the equity went to rank-and-file employees as stock options, the amount of instant wealth could be more than $3.3 billion... |
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