關於stock option的好處

Question

請英文達人可以幫我解釋一下stock option的好處嗎...可以用英文說明一下謝謝

Answer 1

Long Call

Pro:
Leverage
The buyer purchased one ABC March 100 call option for $2. It has the right to purchase 100 shares of ABC at $100 at any time prior to the March expiration date. If the price of ABC shares rises to $120 during the term of the option, the buyer can realize a gross profit of $20 per share by exercising the option. And the net profit of $18.

So the profit upside is unlimited. Downside is limited.

(Of course, the buyer of the call option has the choice not to exercise the option, and can instead close the position any time before the March expiration date by selling the call option in the options market at its then current market price.)

Con

When you have out of money positions, you are out of luck. You lost everything.

Long Put

Leverage
The buyer of one ABC March 100 put option has the right to sell 100 shares of ABC at $100 at any time prior to the March expiration date. If the price of ABC shares falls to $80 during the term of the option, the buyer can realize a gross profit of $20 per share by exercising the option. Again if the buyer purchased the Put for $2, his/her profit is $18.
So upside is unlimited. Downside limited.

This can also hedge against your underlie stock as well. If you think the stock will decline, you can have someone buy your stock at the exercise price. It works like a insurance.

2005-12-13 00:07:32 補充：
Write Put

If you want to purchase the underlie stock, perhaps you want someone pay you in advance. Thereby, some fund managers do this.

The upside is the Put option premium The downside is Excercise (strike) Price.

2005-12-13 00:10:23 補充：
Write Call
Pro:

It hedge against your underlie stocks.

Con:

You lost the growth potential for the stock.
If you do not have underlying stocks, the downside risk is unlimited. (See Pro for Long Call). {Upside is the Call option premium.}