A bond is a debt that the corporation owes and will repay in the future plus interest. It does not represent any ownership in the company and thus has none of the rights that shareholders possess. Bonds are considered safer investments than stocks because if the company invested in was to go belly-up, bondholders are to be repaid prior to shareholders. Because they are lower-risk instruments, bonds will typically pay a smaller return than stocks. Bonds can be bought directly from a company or from other traders selling them on the open market. They can only be sold short if they are included as part of a fund that does allow short selling, as they are a loan and thus cannot be borrowed.
Options have recently exploded in popularity, especially for those looking to sell short. Sometimes referred to as derivatives, these were first officially traded in the United States in 1982. A call option gives an investor the choice, but not the obligation, to purchase a stock at a given price. Because options traders are trying to predict the future, there is no guarantee as to what the actual price of the stock will be down the road, and thus no guarantee as to whether the trade will end up being profitable. There are two players involved when it comes to options, just as with a traditional sale. The holder is the individual who is given the choice of whether he or she wishes to execute the option.The writer is the party that is going to provide the financial product being offered.
No comments:
Post a Comment