Understanding Stock Options, Research Paper Example

Introduction

The complexity of the different concepts making up financial development and operations improve the manner by which humans tend to understand the real value of money and how to give attention to such worth as part of their lives. Money is of course noted as one of this world’s most important elements that provide humans and institutions to function accordingly especially in relation to the course of assuming better management of one’s lifestyle and source of income. Relatively, it could be understood that that when it comes to managing the finances, an individual has different options and choices from which he could pick from based on what best fits his situation and his available resources.

In the discussion that follows, a distinct focus on the different types of stock options available for the public to take notice of shall be given attention to. Providing distinct description on these matters and these options shall impose a distinct valuation on how stock options ought to be accepted as part of the major financial considerations that members of the modern community are going to be involved in. Practical and direct to the point discussion on these elements of financial development options shall be given attention to herein.

What are Options?

An option is basically a form of contact that involves the connection of a buyer with a seller and the manner by which they intend to mandate how a particular asset is managed according to the valuation that the asset has in relation to the consideration that both the seller and the buyer give high regard to. When options are being talked about, the determination of monetary value in par with the time they are being invested into a specific institution or a particular monetary arrangement or agreement is given high regard. Notably, it is observed that when it comes to managing money, the creation of distinct connection between profit and investment creates a close relationship especially with regards the different considerations placed upon the future earnings of the options to which the invested monetary resources or assets are enrolled into.

The Different Types of Options

There are considerably different types of options that provide a definite course of distinct monetary management for individuals and institutions alike. Depending on the value of asset they are aiming to invest into a particular policy, the emergence of such types of stock options entail to create a definitive pattern of determination on how monetary assets are to be kept in the market circulation while creating distinct effect on how the owners of such assets regain the value of such investments in terms of profit returns.

Here are some of the most common forms of stock options made available for the market to appreciate:

Options according to rights-these options provide a determination on how the assets are to be considered especially in relation to the value that they represent to either the buyer or the seller.

Options according to underlying assets: This type of options insist on the aspect by which assets are treated according to the role that the buyers and sellers play in the industry that they are included in. For instance, bond options allow policy owners to utilize the benefits of their options as borrowed amount from the primary value of the policy while also earning as much amount of profit from the said account. Another subtype of the asset-based options include the future option whereas buyers are expected to take on the different options of monetary management while agreeing to get their profit from the agreement within a specific time in the future. This is a much safer type of option-investment as it assures the seller and the buyer of a distinct source of income in the future [one example of this type of option would be the time-deposit options offered in banks].

Options according to trading markets: There are two very specific and distinct forms of options under this particular type of monetary investment. The said types are namely the exchange traded options and the over-the-counter options. Most often than not, exchange traded options involve the use of standardized contracts to which the investors are going to agree upon. Relatively, these stock options are offered up to organizations [and at times individuals] who would want to define their investment through the use of the policies held strongly within the operations of the international market trade.

Meanwhile, over the counter options is often defined as the type of asset dealership that includes two private parties that give high regard to the value they play in the agreement especially when it comes to the total determination of the overall returns that is desired to be garnered by either the seller or the buyer of the assets.

In the US, there are currently two distinct stock options created for individuals to take notice of. These options are usually dedicated towards determining the real return-value that the investments would achieve in the long run. Some of these stocks include the employee stock options whereas the employees are given the chance to have a share from the overall operations of the business as partners or as associates. Most of the time, this type of option is used to mandate how the monetary resources of the employees are to be used and managed by the business through time and how their earnings are to be computed based on a specific time table that has been given specific attention to during the conception of the agreement.

Another would be that of the prepayment options that include mortgage loans that are paid for in a staggered manner that makes it easier for the option holders to immediately realize the value of their investment in actual time rather than waiting for it to mature through time.

As noted from this part of the discussion, there are indeed several types of options that both organizations and individuals could use for them to realize the real value of their assets which could either increase or decrease through time based on the nature of the investment’s overall worth in the market. What is considered important in relation to this matter is the fact that when it comes to valuing the real worth of a particular investment, the need to see through the conditions of improvement and value-based progress is an important aspect of the decision –making of whether or not a particular aspect of development should be pursued or should it be set aside.

The decision of policy owners to enroll or be involved in a particular monetary arrangement comes shall depend on their own understanding of the reality behind options, stocks and investments. Providing too much attention to details [sometimes even more than as required] presets a very crucial point of decision making especially for those handling the market and manages the monetary assets of the community.

Conclusion

As based from the discussion, it could be realized that when it comes to policies of managing one’s money, men are a bit specific especially when it comes to determining what future values could be taken from the investment being pursued. Even though there are instances when monetary resources are being less cared for, the emergence of the different types of options gives the public a better chance to see monetary resources and assets differently. The makeup of the different policies dedicated to creating a connection between the seller and the buyer, thus fueling their desire to be served accordingly with the right amount or the right worth of money that they deserve as they face the different options of growing monetary profit from the different options of monetary forms of investment as noted in the discussion herein.

Practically, the creation of such programs that would sustain the need for individuals and institutions to put in their assets within a specific policy or plan of financial management would be the best choice to take. The need to support the system necessarily became one of the primary reasons by which the establishment of other option policies is being pursued at present. With the emergence of new generation, communication barriers are expected to occur; nevertheless, controlled businesses are prepared to handle such pressure [including that of their wedding day] and still end up not being guilty with everything else that she has done.

Works Cited

Reilly, Frank and Keith C. Brown, Investment Analysis and Portfolio Management, 7th edition, Thompson Southwestern, 2003, pp. 994–5.

Schneeweis, Thomas, and Richard Spurgin. “The Benefits of Index Option-Based Strategies for Institutional Portfolios” The Journal of Alternative Investments, (Spring 2001), pp. 44 – 52.

Whaley, Robert. “Risk and Return of the CBOE BuyWrite Monthly Index” The Journal of Derivatives, (Winter 2002), pp. 35 – 42.

Moran, Matthew. “Risk-adjusted Performance for Derivatives-based Indexes – Tools to Help Stabilize Returns.” The Journal of Indexes. (Fourth Quarter, 2002) pp. 34 – 40.