Stock Price Charts

How is the payout on a share of stock similar to the payout o a call option?

How is the payout on a share of stock similar to the payout on a call option? What are the agency issues that can arise of the value of stock is close to zero?

Public Comments

1. A call option is the right to buy shares of stock at the strike price up until the option expiration date whereas ownership in a share of stock represents ownership in the company issuing the stock. Options are derivatives as they derive their value from the underlying stock. If the stock price is below the strike price of a call option it may have no value unless the expiration date is far in the future. As the stock price gets close the the strike price and the expiration date nears the price of the option will behave similar to the price of the stock. Most options represent 100 shares of stock. The only way to get a payout on either a stock or option is to sell it in the open market. You could also excercise the call option and sell the shares on the open market. Once a stock nears the value of zero then any number of things can happen but most likely you will find the company's equity is worthless and may be delisted from the exchange. Once delisted liquidity will not be present and you will not be able to sell your shares and will lose your entire investment.