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Understanding stock options: 15 pages in length. Goes into great detail in discussing the definition of stock options, history of stock options, employee stock grants and controversies in the field. Bibliography lists 8 sources. JGAstock.doc
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executive pay and performance. However, the executives surveyed expressed confusion over the incentives provided by stock options" (Electric Perspectives, 1999, pg. 6). In order to better understand what it is
we mean when we speak of stock options, there are several topics to be covered concerning this rapidly growing compensation plan. More and more companies are offering stock option
as incentives, but it too often leaves the employees confused. I. What Are Stock Options? Stock options are investment instruments known as derivative
securities. This means that any stock option derives its value from an actual equity or actual stock. The value of a stock option is directly dependent upon the
movement of the price of the underlying security. Any given stock option will have an underlying security. It is important
to understand that a stock option is considered a contract. This contract represents the legal right to buy or sell shares of the underlying stock. Since each contract
normally is representative of one hundred shares of stock, there are no partial contracts. Options traders, we find, can own as few as one contract or as many contracts
as the options trading capital allows. The purchase of a stock option contract does not necessarily obligate the buyer to purchase or sell any actual shares of the stock;
it simply means you have the right, that is, the option, to buy or sell actual shares of stock (Schaeffers Investments, 1999). There
are two types of stock options and those are the calls and puts. Because a stock option is an actual contract that gives the owner the option, or right,
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