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Stock options do not specifically allow an individual to purchase stock. In short, they allow an individual the right — or option — to purchase stock at a given time for a given price. Individuals need to exercise stock options during the right time to gain the most from this purchase. To do so, the individual holding the option needs to exercise stock options by monitoring market conditions, contacting a broker, and handing over money for the cost of the stock. Other specifics may be necessary at the time of the stock option, depending on the rights and agreements in the options.
The key to the successful exercise of stock options is watching the market and knowing current market conditions. This is the main benefit of owning a stock option; so long as the option remains good, an individual can purchase stock at the right time. Unfortunately, this is also the biggest problem with stock options. Few individuals know the exact right time to exercise options in order to achieve the biggest gain. Therefore, a solid understanding the current mood of the stock market and researching a company’s stock prior to purchasing is an essential part of this process.
A broker is necessary to make the actual purchase of a company’s stock. Once an individual decides it is time to exercise stock options, the buyer needs to make the necessary contact. In some cases, an online account with a stockbroker may be the intermediary an individual can use to exercise the options. For example, simply logging into an account with the financial services firm can result in the necessary actions to purchase stock during the stock option period. When using a stock option agreement, purchasers may need to follow very specific rules to properly do so.
Money is necessary to exercise stock options and actually purchase stock, regardless of the agreements with stock options. While some brokers may allow an individual to purchase stock on account, this results in interest payments for the borrowed money. An individual usually needs to fund an account with money prior to making a stock purchase. A good plan with stock options, however, is the ability for an individual to decide when to exercise the options at a certain price point. The buyer can then plan how much money he or she needs to exercise stock options and set the money aside, making it a smoother process in the long run.
Buying and selling stock options can be quite risky, but you can also make some money from it.
What I like about buying an option is that you don't need to have as much money to do so. If you wanted to buy some Apple stock, the price is around $400 for one share.
Buying an option gives you the chance to invest in this company at a fraction of that cost. You really need to be on top of the market if you are holding on to options though.
They have expiration dates and a time decay factor that can really affect the price of the option. Trading options on a regular basis is certainly not
for the faint of heart.
I use an online broker for all of my trades, including option trading. I use the same concept with trading options as I do actually purchasing shares of stock.
If I think the price is going to increase, I will buy a call option. If I think the price is going to decrease, I will buy a put option.
You will also need to sign an option agreement before you are able to buy and sell options. Since they carry more risk than an actual stock purchase, the brokerage needs to make sure you are aware of this extra risk before investing.
About 10 years ago I left a major bank where I had worked for several years. When I left, I had a certain number of shares of this banks stock in a stock option.
At that time, the price was good, but I decided to hold on to it for awhile and see what it would do.
I don't remember the exact numbers, but when I finally cashed in the option I think the stock was selling for around $55 a share.
This was before the current market meltdown and now the price of that stock is selling for around $5 a share.
I am sure glad I didn't wait any longer than I did to sell that stock option. Who knows if it will ever get back up to the $50 range again.
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