--%>

Stock option price-Strike price-Put and Call

What do you mean by the following terms: a stock option price, strike price and what are a put and a call?What is the merits or demerits of purchasing stock options over stocks? What function do Mutual Funds execute with Stock Market investments?

E

Expert

Verified

A stock option offers an employee the right to buy a certain number of his/her company shares at some future date and at the specific price already decided by the employer. This specified price is referred to as the stock option price and may be mostly the current price while issuing the stock option. Similarly, an option offers an investor the right to buy or sell but not an obligation and the specified price at which the investor can buy or sell shares is referred to as the strike price. A call option offers the right to buy and a put option offers the right to sell shares at the strike price within a specified time period.

The advantages of options over stocks include (1) leverage over a stock without any obligation, (2) cheaper per share, (3) limited risk and (4) protection against stock volatility.

The disadvantages include (1) higher cost of trading, (2) complex to understand and needs a keen eye, (3) subject to time-sensitivity and (4) some positions have unlimited risk. Of the many methods to trade in a stock market, mutual funds play an important role, since they include a portfolio of stocks managed by an expert fund manager and hence investors need not invest more time and efforts in choosing the specific stocks as when done individually. Thus mutual funds lower the risks, investment amount and the time that an investor spends but offers good profits.

   Related Questions in Macroeconomics

  • Q : Zero primary deficits What points out

    What points out zero primary deficits? Answer: Zero primary deficits signify that the government has to resort to borrowings simply to make interest payments.

  • Q : Self consumption-Value of output

    Illustrate whether output generated for self consumption is comprised or not comprised in the value of output? Answer: The output generated for self consumption is

  • Q : McConnell Brue Flynn 19e What

    What relationship does the MPC bear to the size of the multiplier

  • Q : Microeconomics concepts as a primary

    Write a 3 page paper using microeconomics concepts as a primary mode of analysis.  Your paper should use 1.5 line spacing, a 12 point font, and 1inch margins.  Proof read your paper.  You will lose 5 percentage points per day for each day past the

  • Q : Total revenue when price modify When

    When total revenue to a firm is unaffected by small price modifications, then demand is: (i) Relatively price elastic. (ii) Relatively price inelastic. (iii) Unitarily price elastic. (iv) Vertical. (v) Horizontal. Can someone help

  • Q : Maximum Consumer Surplus Assume that

    Assume that you receive $18 worth of ‘jollies’ (that is, utility, satisfaction or pleasure) from the very first hole of golf played on a particular day, and that your extra jollies from succeeding the holes drops $1 for each and every hole played. You shou

  • Q : Define bank rate policy Define bank

    Define bank rate policy? How does it operate as a technique of credit control? Answer: Bank rate is the rate at which the central bank provides loans to the commerc

  • Q : Problem on law of diminishing marginal

    According to law of diminishing marginal utility, the longer that Lee and Chris kiss: (i) the less invested each will be in ongoing this relationship. (ii) The nearer they are to reaching their joined production possibilities frontier. (iii) The more

  • Q : Difference between APC and MPC

    Differentiate between APC and MPC. The value of which of them can be greater than another and when? Answer: APC is the average

  • Q : Principles of macroeconomics Explain

    Explain the concept of “economies of scale” and “increasing returns”.