--%>

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 : Explain growth accounting. Economic

    Economic growth is measured by the rate of increase in national output, GDP. The output depends on inputs -labour, capital technology etc. the theories of economic growth bring out how and to what extent each input or factor contributes to the g

  • Q : Difference between

    Elucidate the differences among the frictional, structural, and cyclical forms of unemployment.

  • Q : Define voluntary unemployment Voluntary

    Voluntary unemployment: It refers to a condition when person are not willing to do work at customary market wage rate, though they are receiving a work.

  • Q : List Which of the following lists

    Which of the following lists includes only capital resources (and ther Which of the following lists includes only capital resources (and therefore no labor or land resources)?

  • Q : Surplus of the good Describe when there

    Describe when there will be a surplus of the good?

  • Q : Microeconomic analysis emphasizing to

    Family member to macroeconomics, the microeconomic analysis: (w) was emphasized through economists prior to the Great Depression. (x) is related with the effects of extensive government policies. (y) focuses upon economic development

  • Q : Evaluation of net present value Explain

    Explain evaluation of net present value (NPV) and internal rate of return (IRR) in brief?

  • Q : How prices allocate resources How

    How prices allocate resources?

  • Q : IMF? In saying that the present system

    In saying that the present system of floating exchange rates is managed we mean that: IMF officials determine exchange rates on a day-to-day basis. countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF. the value of any IMF member's currency

  • Q : Principles of macroeconomics What are

    What are the “powers of the Federal Reserve