Stock options have a lot of similarities and differences with stocks. To understand stocks and stock options better, I have prepared a comparison of stocks and stock options.
Similarities of Stocks and Options
One of the most glaring similarities with stocks and stock options is that they are listed securities. In buying and selling either stocks or stock options, brokers are utilized as well as market makers or specialists. Option orders are listed and are executed in major exchanges that are regulated by the Securities and Exchange Commission (SEC). Trading for both stocks and stock options are made in a competitive and open atmosphere.
Both in stocks and stock options, bids and asks are offered by buyers and sellers. The bids and asks in stocks involve ownership of the shares of stock of a corporation whereas in stock options the bids and asks is for the opportunity to own 100 shares of stocks within a particular period, for a particular share price.
Because of their public and open nature, buyers and sellers of stocks and stock options are informed of the pertinent information involving stocks and stock options. This include: price changes, the amount of asks and bids, trading volume as well as other important data regarding stocks and stock options.
Differences of Stocks and Stock Options
Stocks are different from stock options too. When one owns a share of stock one can be considered as a partial owner of a corporation. One has voting rights in the corporation and one also has a right to receive the dividends or profits of the corporation. When one owns stock options, one does not own part of a corporation. What one owns is the possible benefit from a stock price change. A stock option provides the right to own stocks that are sold at an agreed price for a specified period.
Ownership in stocks and stock options are also different because one can own shares of stock for as long as he wants whereas one cannot own a stock option as long as he wants. Stocks have no expiration date and once you bought, it is yours until you sell it. Stock options are owned for only a period of time and they cannot be owned indefinitely.
Also, stocks that are bought and sold everyday are limited. A corporation has a limited and specific number of stocks that can be traded. Stock options are not as limited or as specific in number. The number of stock options varies and they are determined by the number of sellers and buyers that are willing to buy and sell stock options.
Lastly, when you buy shares of stock, a stock certificate is given as evidence of your ownership of those stocks. In stock options there are no certificates that are given to you. What is given is a statement showing your stock options position.
Understanding stocks and stock options are not easy as they require you to take in new terms and imagine how they work. I hope that by giving this comparison you can better understand stocks and stock options.