The Basics of Options

An option is a securities contract that allows the holder to buy or sell a fixed amount of shares of stock (or indexes and commodities) at a specified price within a limited time period. If the option is not exercised during the specified period, the option expires. Most options usually expire within a year; however, some may not expire for as long as three years.

Dividend Reinvestment Plans (DRIPs)

Many new investors look for a way to invest a small amount of cash into the stock market without paying huge commissions. To meet this increasing demand, more companies are offering dividend reinvestment plans, also known as DRIPs. DRIPs are offered by a corporation and allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares of some of the most well known publicly-traded companies for as little as $10 at a time. As a result, DRIPs have become heavily promoted as viable solutions to new investors entering the stock market

Employee Stock Purchase Plans (ESPP)

An employee stock purchase plan (ESPP) is a plan that allows a company to compensate a broad group of employees with options to buy the company’s stock at a specified price, usually at a discount. Many large companies use these plans as an employment incentive, giving employees an opportunity to share in the growth potential of the company’s stock. Generally, the employee is not taxed at the time the stock is purchased.