Stock Options

Paper Summary:

The paper describes how most investors look at options as useful tools of risk management and use them as protection against a drop in share price. The paper further explains how hedging through options helps a person to manage risk, yet, it is important to remember that all investments carry some risk, and returns are never guaranteed by any investment. The writer concludes that options permit individuals to see their dreams in a much larger scale than their pocket would permit them than if they were to invest in the stock market, making options a cheaper alternative to stocks.

From the Paper:

"Some suggest that a method could be for the employee to take positions in other securities so that the risk will be evened out. The best possible hedge is to short sell the stock that the employee is expected to get, and then if the stock price falls, then the loss in the value of options will be made up by the gains from the short sold shares. At the same time, this is an important method to earn money and the Securities and Exchange Commission has now forbidden that officers and directors short sell their own shares, but this can be done by the lower level employees still."

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