Understanding Stock Options

stock optionsIf you’re at all familiar with investing, then you probably understand how a stock works, at least in broad strokes. When you buy a stock, you buy a share in a company. It’s not a literal ownership share (there are some legal differences), but it’s pretty similar in some ways. If the company does well, the value of your stock goes up. If the company does poorly (at least relative to what its expectations were), then there will be less demand from people who would buy your stock, and the stock will lower in value. That’s simple stuff — it’s really just a stock-market version of supply and demand!

But what about options? A “stock option” is something that you might hear about when a company tries to hire you. Or you might hear about someone using options to “short” a stock. What does this mean? Let’s explore the fascinating world of stock options.

What is an “option?”

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