Stock, Bond and Option
Bond is a debt that the bond issuer own you if you have bought the bond. When there is a project to carry out regardless it is a big or small project, if the people who intend to start the project do not have money, one of the sources for them to generate fund is by printing bond and selling it to public. By doing this, they can generate fund to carried out the project. This seem like the owner of the project borrows money from you and they give you the bond as evidence that they have borrowed money from you. By owning this bond, you will be paid interest and repaid all the money that you have lent to them at a specific date. Not anybody can print bond and sell it to public. People who want to do so have to apply to the government as a bond issuer. Usually, these people are from corporate agency, states, cities and federal government agency. As a bond holder, you have priority to have your money back compared to shareholder if the bond issuer goes broke. They will pay back the money for you as a bond holder before they pay to their shareholder.
Stock and bond have a tangible value that you can grasp and visualize. The ownership of a stock that you have purchased can last for a long time as long as you continue hold this stock and don't sell it. The ownership of a stock can not be canceled unless the company goes broke (means that the company have declared bankruptcy). Bond usually has contract type repayment schedule and once they have paid back all the money that you have lent to them, the bond will end. The third type of investment does not give a whole life ownership and does not provide any tangible value. The validity of this investment has expiration date. Once the expiration date has over, the whole investment will become worthless. Apart from that, the value of this investment will decline when the time passes by. These are part of the features that options have. Due the lack of tangible value, worthlessness after expiration date and value declines due to the time has passed by; all these make options seem too risky to be invested for most of the people. However, there are still a lot of investors interested in option investment. Do you know why?
This is because not all methods that had been used in trading option are risky. What had been mentioned just now such as lack of tangible value, worthless after expiration date and option value declines after the time had passed by can work to our advantage. For an example, we can sell option that has a very short period of time to expiration date, which has a low possibility to become in the money option. Like this, when the time has passed by, option value that has declined will be our gain. There are limited strategies to trade stock but for option, there are a lot of strategies can be utilized. For stock, we either buy or sell stock. That's all what we can do. But for option, we can combine a few positions together to form a synthetic position to earn money from the stock that move either up, down or side way. You will realize that options are very flexible after you have study more about it. You can use options in numerous situations and create numerous opportunities.
An option is a contract of agreement that allows you have a privilege in executing transaction involving 100 units of stock. This agreement only involves the option buyer and seller. This privilege includes a specific stock with a specific fixed price per share and also a specific date in the future for its validity. When we have bought a contract of option, we do not have any equity in the stock and any debt position. What we have is a contractual right to buy and sell 100 units of share at a fixed price within a fixed period of time. You will feel wondering why we need to purchase an option to gain the right since we can always buy or sell 100 units of share at the current market price. The answer is that option has fixed the stock price that you can buy or sell and this is the key to an option's value. Stock price is unpredictable and this feature makes stock market investment interesting and also very risky. When we own an option, the stock price that we can sell and buy 100 units share is already frozen for as long as the option remains valid. Finally, the option's value is determined by the comparison of the fixed price and the stock market current price.
Alexander Chong Author of "Workable Option Trading Strategies" http://www.makemoneystocks.com/
Related Tags: investment, stock, government, agreement, stock price, option, share, expiration date, bond, ownership, expiration, tangible value, bond issuer, fixed price, time p
Your Article Search Directory : Find in Articles
Recent articles in this category:
- The Secrets to Getting Low Down Payment Car Insurance
Upon purchase of a new car, there is almost always a requirement to buy an auto insurance policy as - The Wisdom Behind Auto Insurance Comparison Quotes
No one in his right mind would not go for a good deal. In fact, everyone is out on their feet and ru - The Benefits of Auto Insurance Comparisons Florida
Insurance can be expensive. This is something everyone knows about especially in the sunny state of - Auto Insurance Florida: The No-Fault Policy
There are different kinds of car insurance offered by a wide range of providers today. Different sta - Finding the Cheapest Auto Insurance Companies
Everyone is asking and searching for the cheapest auto insurance companies available today. Consider - How do You Compare Private Health Insurance Cover in Australia?
Deciding what is the best and most affordable private health insurance cover can be easy if you take - How Payment Protection Insurance Was Mis-Sold
For over six years the issue of Payment Protection Insurance (PPI) and how it was mis-sold to custom - Finding Quotes For Auto Insurance Online
One of the many concerns when you are shopping for auto insurance is being able to get access to quo - How You Can Find the Best Auto Insurance Online
When it comes to renewing your car insurance you are going to quickly discover that there are a numb - Guidelines For Searching For Auto Insurance Online
The internet can be a great source of discounts and values related to auto insurance. However, many
Most viewed articles in this category:
- Trading Forex With Pivot Points
Forex Pivot Point Trading are used today by Forex Traders and are calculated on the previous days mo - Where To Search For Free Grants
Where do you look for free grants? The search must be thorough or it could be an exercise in futilit - The Connection Between High Blood Pressure and Salt
We are a society of Salt Addicts. It cannot be denied. When you look at the things we do and the pla - Tips For Avoiding HYIP Scams
Before knowing about HYIP Scams, refer to the functioning of HYIP or "High Yield Investment Programs - Getting Credit After Bankruptcy
Consumers do not have to live sans credit following a bankruptcy. By following certain steps consume - Tips For Choosing A Credit Card
Are you looking for that perfect credit card? If so, you may be confused about what exactly to look - Cheap Car Insurance For Teens Online
Many elements determine a car insurance policy. Car insurance companies look at the person's age, hi - What Exactly Is Free Grant Money?
You can apply for free grant money from various government agencies. But where exactly does this mon - Small Business Owners Marketing and Customer Service
Marketing can be time-consuming, but it doesn't have to be hugely expensive now, thanks to the Inter - Apply Online For A Credit Card - How To Choose A Card?
The best type of credit card for you will be dependant on how you intend to use the credit card. Are