← BeginnerLesson 2 · 5:19
What's the difference between an option and a stock?
Summary
You can say what you hold with each one: a share is a slice of the company with no end date, while an option is a contract about the share that runs out. You can compare what a share and an option can each lose on the last day, and name what owners get that option holders don't.
Key terms
- share
- A slice of a company that you own, with no end date while the company lasts.
- stock
- The general word for the shares of a company; owning stock means owning part of the company.
- dividend
- Cash that some companies pay out to the people who own their shares.
- shareholder vote
- The say that share owners usually get on big company decisions, such as who sits on the board.
- expiry date
- The last day an option is good for; after that it is finished.
Check yourself
Answer each question to see why the right answer is right.
1. What do you hold when you own a share of XYZ?
2. You hold one share of XYZ bought at $100, and a friend holds a $3.45 call with a strike of $100. On the option's last day XYZ is at $90. A month later it climbs to $120. Where does each of you stand?
3. Which of these does the holder of a call option on XYZ receive?
4. Counting one share, XYZ finishes the option's last day at $50. What has the share owner lost, and what has the holder of the $3.45 call lost?
5. XYZ finishes at $110. Which statement matches the lesson?
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