Stocks and Stock Options
Stocks and Stock Options
They say that one does not really understand a concept or an idea without comparing this idea with another idea. This is especially true in complicated concepts of stocks and stock options. To help you understand better how stocks and stock options work and their general idea, here is a comparison of stocks and stock options.
One of probably the most obvious differences of stocks and stock options is their effect. When one buys shares of stock, one becomes an actual owner of a corporation. As owner one has ownership rights in the corporation such as voting benefits, election opportunities and the general management opportunity in the corporation. A stockholder also gets to receive his proportionate share in the corporation’s profits. Such is not the case when one acquires stock options. A stock option only gives its owner the choice of either buying or selling the stock or not buying or not selling the stock. The actual ownership of the stock does not accrue. What one acquires is the exclusive right to demand the fulfillment of the stock option. It is only when one actually exercises the stock option that one acquires ownership of the stock. One can think that stock ownership is the main event and stock options are the act before the main event.
Another glaring difference between stock and stock options is the length of their validity and enforcement. Stock option, being a contract, necessarily has a period for its enforcement and validity. This usually lasts only for a few months depending on the terms of the contract. Stocks, on the other hand, have no expiration date as it is a way to own shares of the corporation. Stocks are valid until its owner sells it to another.
The total shares of stocks are subject to the determination of the proper government and corporate officials. The total shares of stock are definitely finite and only limited in number. They are determined by the total capitalization that it measured by the proper authorities. This is not the case with respect to stock options. Stock options, though finite, does not have a determinate or fixed number as shares of stock does. Stock options are determined by the usual supply and demand of sellers and buyers of stocks. There can be as many stock options as there are sellers and buyers. Also, when one owns stocks, one is issued a certificate that evidences the ownership of the stock. When one owns stock options, one does not get a certificate but a statement that is prepared by the brokerage firm.
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