Difference between options
Futures vs. Options — what to choose?
Buying a stock literally makes you an owner of the given company for a fraction to the total number of shares outstanding. Options are usually one of the most preferred instruments used by the fund managers to hedge their exposure or the traders to trade the share price.
Options have many key things associated with them like expiry, lot size, option type, volatility, etc. They usually come with no voting rights.
Dividend payment to them is given more priority than common stock owners and is usually fixed or is aligned with a benchmark like LIBOR. Common Stock: They have the ownership of the company and most of the investors have them in their portfolio, most commonly traded on exchanges.
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They come with ownership benefits like stock bonuses, dividends, shares of the company of its subsidiaries when they are listed.
Types of Option: Call Option: Call Option is the option type which gives you the right, not the obligation to buy the stock of the company at a difference between options price by paying off the premium. This enables you to participate in the upside growth of the company or the stock price while your downside risk is just the premium paid.
Put Option: Put Option is the option which gives the option buyer the right but not the obligation to sell the stock at a certain price. This caps the downside risk for your investment or you can use them to gain will the stocks are going down by trading.
Options vs. Futures: What’s the Difference?
Options are just primarily used as trading instruments used to trade the stock price movements. Stocks come with ownership benefits like dividends, stock bonuses, Voting rights.
Options come with no benefits for the option holder. Stocks when used as invested instruments used for a long-term view with more than 6 to 10 years, Options are more of short terms ranging from a few weeks to months for hedging portfolios.
Stocks are used by individuals, mutual fund managers, pension fund managers, traders, portfolio managers.
Options are limited used by traders and portfolio managers as hedging tool Options are basically the rights purchased by paying the premium to buy or sell the stock at a certain difference between options where the buyer of the option is not obligated to do the same that is why his downside is limited.
Stock buyers are obligated to full downside of the stock.