Put simply, an option is nothing more than a contract that enables a shareholder to buy or sell a particular share issued by, or on behalf, of a company. An equity option has a specific expiry date that is listed on the Stock Exchange, when the expiry is reached it no longer exists nor has it any ongoing value. It does however carry a 'strike' price that will be honoured should the contract be acted on within that time.

There are two varieties of options known as Calls and Puts within exchange traded options.

Call options give the buyer the right to buy shares at a specific time and price. Put options give the buyer the right to sell shares in the company.

The question, company options and exchange traded options, what's the difference? Can be answered by examining each option in turn:

• Company options are options issued by companies in order to raise money. The recipient shareholders are thereby given an opportunity to actually buy the shares on offer at the fixed price on offer, as long as the option is taken up before it expires. This offer remains a company arrangement at all times and is not listed on the Stock Exchange. When this option is taken up and the share is obtained the companies total shareholding is increased by that same amount. Company share policy as regards any rules or regulations determine the use of these options.

• Exchange traded options (ETO) are options being traded on shares already listed. The sale of exchange traded options between parties simply transfers ownership but does not increase the companies capital holding. In fact the company has no control over the ownership of these options in any way.

Company options and exchange traded options, what's the difference? - Staff incentives.

Many companies will offer their staff company options as a financial incentive and to create a feeling of being linked to the company in a positive manner, these company options are often offered for the following reasons:

• To attract highly skilled workers by offering incentives over that of their salary.


• To have the worker feel as if he or she is more like an owner or partner in the company.


• The need to attract and hold onto good employees.


• New companies that wish to retain shareholding cash in their company.

Company options and exchange traded options, what's the difference? - Benefits of trading exchange traded options.

There are a variety of ways in which exchange traded options can be beneficial, some of these can include the following:

• A way in which an investor [http://www.homeloanfinder.com.au/investment-home-loan/#why]can obtain a certain exposure to the share market with little risk being involved.


• The buying in price of the share is locked in.


• A way that allows an investor to buy shares in a company at less than their current price.


• A way to earn income.


• Provide protection on the value of individual shares in an investor’s portfolio.

The seller of exchange traded options is often referred to as the 'writer' and as such has an obligation to sell in the case of a Call option and to buy in the case of a Put option.

As with any other investment, all options have certain risks and you should evaluate these risks fully before investing.