Stock Options

A stock option is a specific type of option with a stock as the underlying (the instrument that determines the pay-off of the option, and therefore its value). Thus it is a contract to buy (known as a “call option”) or sell (known as a “put option”) a certain number of shares of stock, at a predetermined or calculable (from a formula in the contract) price.

Stock Option Valuation

A stock option contract’s value is determined by five principal factors:-

* The price of the stock,
* The strike price,
* The cumulative cost required to hold a position in the stock (including interest + dividends),
* The time to expiration,
* The estimate of the future volatility of the stock price.

Trading Stock Options

The most common way to trade stock options is trading standardized options contracts that are listed by various futures and options exchanges — there are currently six exchanges in the United States that list standardized options contracts based on underlying stocks — The Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, The Pacific Coast Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE) which are all open-outcry marketplaces, and the International Securities Exchange (ISE) and Boston Options Exchange (BOX) are electronic marketplaces. In Europe the main exchanges where stock options are traded are Euronext.liffe and Eurex.

There are also over-the-counter options contracts that are traded not on exchanges, but between two independent parties. At least one of those parties is usually a large financial institution with a balance sheet big enough to underwrite such a contract.

Options trading, without intent to ever exercise the option, can be used as a form of leverage. The price of an option on a security will move more than the price of the security itself. For this reason and due to their usefulness in financial engineering, the total value of trading in options has at times exceeded the total value of trading in stocks themselves.

Options can also be traded to capture a certain level of volatility on an underlying security.

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What is Qui Tam?

Qui tam is a legal term, an abbreviation of “qui tam pro domino rege quam pro seipse”, meaning “he who sues for the king as for himself”.

It is associated with whistleblower laws that protect an employee who brings a civil action against his or her employer alleging fraud against the government, in order to compel the government to act. A qui tam action, therefore, is an action brought by a private individual on behalf of the government.

Generally, where such an action is successful, the person who brought the action gets a bounty in the form of a percentage of the recovery (usually 10%).

Lawyers who specialise in qui tam are listed.

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