The study of options can expand your perceptions about the range of possibilities. Most people are familiar with two forms of investment: equity and debt. There is a third method, however, and that third method is far more interesting than the other two. Its attributes are unlike any that most people understandand these differences can be viewed as a troubling set of problems, or as a promising set of opportunities.
Let’s begin with a brief review, laying the groundwork about the two basic ways to invest. An equity investment is the purchase of ownership in a company. The best-known example of this is the purchase of stock in publicly listed companies, whose shares are sold through the stock exchanges. Each share of stock represents a portion of the total capital, or ownership, in the company.
When you buy 100 shares of stock, you are in complete control over that investment. You decide how long to hold the shares and when to sell. Stocks provide you with tangible value, because they represent part ownership in the company. Owning stock entitles you to dividends if they are declared, and gives you the right to vote in elections offered to stockholders. (Some...