What Are Stock Options?

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Stock options are the promise of a company or brokerage firm to deliver stock at a certain price after a certain period of time. Discuss stock options with a tax planner or attorney to understand the effect of purchasing stocks through stock options with advice from a financial adviser in this free video on investing and stock options.

Part of the Video Series: Investments & Money Management Tips
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Video Transcript

Have you decided that you want to buy stock, using stock options? Hi. This is Roger Groh at Groh Asset Management. All they are is, the promise of somebody, to deliver to you at some date, stock at a certain price. It could be higher today, could be lower than today, could be out five years from today. Or longer, just, whatever is written in that document. How can you really tell? Well, get the prospectus first before going along with it. Why are stock options advantageous? Well, usually they trade for a lower dollar amount than the underlying stock, and if the underlying stock went up significantly in value, in theory the options would also. How can you tell if there's value in there? If you go to the website of your brokerage firm, usually there is an options calculator as part of their website. You can plug in the price of the underlying stock, and the options, to help you work through the math. On whether you're better off buying common, or options. If it's part of your compensation, it might be a different issue. You need to speak with your tax planner, about the impact of stock options on your compensation. Specifically, are they taxable or not? Hope that helps. I'm Roger Groh with Groh Asset. Thank you very much for spending time with me.


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