Where do holders of options come from? Who holds options, anybody?

Answer 1

I feel like teaching you the whole thing about options now, since you are learning bits and pieces. One of these days I shall start sending you the whole picture. A person who buys an option is called the option holder. A person who sells you that option which you buy is called the writer or seller of that options. You can sell or buy option from a bid and ask quotation that appear on the screen.

Answer 2

Options you ask about could be split into two categories.

The most common one we hear so much about are pay package options being granted to top management of corporations.

It's an incentive plan that the corporations all say is the motivation by which they "attract and retain talent", but in reality is fattening up the top tier of officials by allowing them to buy their own company's stock at a much reduced price.

The other category of options are sold just like stocks are bought and sold, whereby you invest a smaller amount of money that gives you control of a stock for a set period of time.

This highly speculative instrument is only available to people who are in a position to sustain losses, and after they've filled out the necessary material from a brokerage firm.

The options are called "puts or calls", the puts are actually bets you make that a specific stock or index is going to drop. Calls are bets you make that a particular stock or index will rise.

Unless these bets are made prescisely and timely (sometimes you have only a few weeks or months in which that bet results in substantial gain from the stock dropping or risely significantly), the most likely scenerio will be that the option expires worthless (and the money you've invested is lost).

So, with two types of options out there, wouldn't you rather be a C.E.O. holding millions of options that you can redeem and then sell on the market for a huge gain?

Answer 3

Options can be bought by anyone who qualifies. Forget employees of a firm that get them as part of a compensation package for now. For regular Joes to buy options you have to meet certain specific requirements which include a knowledge of the risks involved, enough capital to be able to withstand a loss, market experience, etc. Even if you have a trading account and even if you buy on margin you may not be suitable for buying and trading options.

Options are bought or sold on regular exchanges and can be transacted through a broker or on-line in an established options account.