Whats the difference between stock and stock options?
In: Economics
Stock is part ownership in a company, if you buy one share of XYZ corp you are technically part owner of the company. You can sell the share at whatever price you want, but you can lose money if you sell the stock for less than the price you paid. Say you buy 10 shares at $100 each ($1000). If the stock price goes to $110 and you sell it, you will have $1100 ($100 profit).
Stock options are an option to buy stock at a certain price. They are often given out as part of compensation and retention bonus for employees at a company. Typically there are one or more vesting periods, 6 months or a year, where you can’t use them. The grant has an amount of options given and a vesting price.
So say you work for ABC corp and they give you 10 shares at $100 over 5 years. So after 1 year you can sell 20% of the shares (2 shares). If the stock price has gone to $120, you can cash out 2x$120 = $240. However if the stock price is $90, the options are underwater (worthless) and you get nothing. However you can continue to hold onto the options and hope the stock price will eventually go back up again.
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