Stock option

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Stock option

Stock Option

A non-tradeable call option giving an employee at a publicly-traded company the right to buy shares in that company for a certain price. Stock options in this sense are often a part of compensation for major and mid-level executives in large publicly-traded companies. If the share price for the company increases, stock options can be very profitable for the employee. These stock options have certain rules governing when and how the option can be exercised.

stock option

An option to buy or sell a specific number of shares of stock at a fixed price until a specified date. See also call, capped-style option, incentive stock option, put.

Stock option.

A stock option, or equity option, is a contract that gives its buyer the right to buy or sell a specific stock at a preset price during a certain time period.

The exact terms are spelled out in the contract. The same contract obligates the seller, also known as the writer, to meet its terms to buy or sell the stock if the option is exercised. If an option isn't exercised within the set period, it expires.

The buyer pays the seller a premium for the privilege of having the right to exercise, and the seller keeps that premium whether or not the option is exercised. The buyer has the right to sell the contract at any point before expiration, and might choose to sell if the sale provides a profit. The seller has the right to buy an offsetting contract at any time before expiration, ending the obligation to meet the contract's terms.

Stock options are also a form of employee compensation that gives employees -- often corporate executives -- the right to buy shares in the company at a specific price known as the strike price. If the stock price rises, and an employee has a substantial number of options, the rewards can be extremely handsome.

However, if the stock price falls, the options can be worthless. Often, there are time limits governing when employees can exercise their options and when they can sell the stock. These options, unlike equity options, can't be traded among investors.

References in periodicals archive ?
The International Employee Stock Options Coalition (IESOC) supports broad-based employee stock option plans.
The problems resulting from enactment of the proposed FASB rule could result in drastic curtailment not only of employee stock option plans but also of employee stock purchase plans that are open to all employees.
The repurchase, which may be made from time to time on the New York Stock Exchange, will be used for issuance of stock in conjunction with the ongoing requirements of employee stock option plans and other employee benefit plans.
Mandating that options be expensed will mean the end for many broad-based employee stock option plans.
The Financial Accounting Standards Board (FASB) is holding morning and afternoon Roundtable discussion sessions in Palo Alto to consider the expensing of broad-based employee stock option plans.
The conversion price would be subject to adjustment for stock splits, stock dividends and recapitalizations and would be subject to broad-based anti-dilution adjustments for issuances by the Company of equity securities (other than securities issued under employee stock option plans and other customary exceptions) at a purchase price per share less than the conversion price.
and abroad that support broad-based employee stock option plans.
Because FASB's exposure draft will lead to gross overvaluation of employee stock options and corresponding investor confusion, companies will have little choice but to severely curtail or eliminate broad-based employee stock option plans.
The company intends to use the authorization to repurchase its common shares to mitigate the dilution from the issuance of shares under the company's employee stock option plans and to offset the approximately 200,000 shares issued in the Printcafe acquisition.

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