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What's A Stock Option?
By Giovani Saintiny
Simply put, a stock option is an agreement that the holder of the option can buy a predetermined amount of stock at a predetermined price. If the market price rises--say--within that time period, too bad for the issuer! The holder of the option can still buy the stock at the lower predetermined rate. But, does this works in the not-so-wonderful other direction, as well? If the stock drops in value, must the holder of the option pay the higher agreed-upon price in order to buy? In most cases, actually, the answer is NO. There may be a minor penalty for not buying in time. But, often, the option is allowed to simply expire. So, if the option holder wishes, it's always possible to simply buy the stock at the lower market value. Option agreements are also used in other situations, such as real estate contracts and industrial agreements. The meaning is often similar to that discussed, above. NOTE: The above is general information not to be construed as legal advice. Those in need of legal advice are encouraged to speak to a professional. |
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This intel was contributed by Giovani
Giovani
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May, 2012
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