What does it mean for a company to exercise options?
In: Economics
Stock options are insurance that allows you to sell or buy stock at a contracted price regardless of what the market price is. So, for example, you bought stock at $100 per share. You buy options that allow you to sell the stock any time for the next 12 months at $80 per share. 3 months later the price drops to $20 per share and you use your option to sell at $80 to limit your losses. The guy that sold you the options is out a lot of money but you bought that insurance at a very small price and now you’re exercising it.
Latest Answers