Take Over Bids
The new issue is the only other way of obtaining shares without going through a bank or stockbroker. This is when a private company wishes to become “Public” and raise additional money, for offering to the public through a "Pubic Offer for Sale" some of it shares. The prospectus for the issue is advertised in the financial press and the investor can apply for shares by completing the application form which is attached to the prospectus and sending it with a cheque to cover the cost of the shares applied for to the issuing company's agent, usually a commercial or merchant bank. The problem with this type of purchase of shares is that the issues are usually priced at a level relative to other shares in order to shares applied for by the public greatly exceeds the number being offered for sale. So if an investor wishes to this form of obtaining shares, he
must be prepared to receive request for more shares than expected.
Take Over Bids
One form of financial transaction that materially affects the Stock Market and which always receives great coverage in the press of advanced countries is the take over bid. The usual logic of take over bid is to create a large and better organised unit in industry often designed to compete more effectively with overseas competitors or to provide a more efficient company by taking advantage of the economics of scale. Of particular significance to the average investor is the fact that the take over offer is usually considerably higher than the market price of the offeree company prior to the bid and quite often a long and hard fought battle takes place for the control of the offeree company.
Options
This is one of the shorter term speculations. An option is the right to purchase or sell a certain stock at any time over the three months following the purchase of that option. An option to buy stock is usually called a 'call option' an option to sell a stock is called a 'put option'. In order to obtain this right, the speculator has to pay 'option money'.
Options are usually used when a speculator believes that a certain
event or events could lead to a share being substantially higher or lower within the ensuing three months. As the cost of an option is only a fraction of the cost of the security itself, he will not only gain exposure to a far greater quantity of stock with the same amount of money but he not fulfilled expectations are can also limit the total amount that he could lose if his expectations are not fulfilled.