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ESL go.com's "stock options" free online business English class

In this class, we're going to look at options, a certain type of investing. There is a short explanation about stock options retrieved on 1/26/2004 from http://www.ameritrade.com/educationv2/fhtml/stocksfunds/whatroptions.fhtml and then there are some questions to make sure you understand stock options. Finally, there is a short stock options vocabulary section that covers some common phrases used to describe stock options.

What Are Options?

Although you may never have bought or sold stock options, you are probably familiar with the concept of options as it applies to other situations. For instance, when buying a house you might have placed a nonrefundable deposit to hold a property for a short time while you looked at other properties. That is an example of a type of option.

Buying stock options is quite similar. When you purchase stock options, you purchase a contract that gives you the right, but not the obligation, to trade stock at a specific price until a specific date. As the holder of an option you may choose to exercise (buy or sell the underlying stock), sell the option to close out your contract, or let your option expire. Many individual investors find options useful tools because they can be used as either a type of leverage or a type of insurance.

When used as leverage, options provide you with limited control over shares of a stock with substantially less capital than would be required to buy the shares outright.

When used as insurance, options can partially insulate you from price fluctuations by granting you the right to buy or sell shares at a fixed price for a limited amount of time.

Options are an inherently risky investment vehicle and are not suitable for all investors. Options should only be traded by the most experienced and knowledgeable investors who are prepared to closely monitor market conditions and who are financially prepared to assume potentially substantial losses.

Here are some true/false questions about options. See if you can answer them based on the reading.


Instructions

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Stock market options vocabulary

To exercise an option means to use the option to buy or sell stock at the price guaranteed by the option contract.

To let an option expire means not to buy or sell the stock you optioned. In this case the money you spent on the option is nonrefundable (you don't get your money back).

Practice talking about stock options on the business message board.

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Few individuals become expert investors who can take advantage of options trading. Most people are better off with a financial adviser to make decisions related to tricly investments.