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 ?
Tracking tools such as an online library where board resolutions and stock option plan documents can be securely archived.
That is, compensation cost arising from the issuance of stock options may be expensed or capitalized in the same way as cash compensation.
But just as they've started to make some headway, questions regarding the backdating of stock options threaten to immerse them and their companies anew in a wash of investigations by the Securities and Exchange Commission (SEC), federal prosecutors, the Internal Revenue Service (IRS) and shareholder-related class-action derivative suits.
In addition, while appreciating the extension of the period for optional reporting of compensation arising from the exercise of employer-provided nonqualified stock options, we believe that Announcements are an improper means through which to impose a mandatory wage-information reporting requirement.
The new conventional wisdom is that stock options are on the way out, with restricted stock and other forms of long-term incentives replacing options as the predominant form of executive compensation.
Joseph Lieberman in late-1993 to sponsor a bill that would have required the SEC to make it unacceptable to recognize employee stock options as compensation expense.
Prior to their divorce in 2002, A had received nonstatutory stock options from his employer.
Only a little more than a year ago it seemed that stock options were the quick path to riches.
Stock options are taxable for Dutch wage, social security, and personal income tax purposes when the employee can exercise the stock option for the first time.
Since June 15, certain public companies have been accounting for share-based payment transactions--including employee stock option compensation--as an expense, often against their will and better judgment.
Currently, neither the Code nor relevant regulations contain any provision excluding the value of stock transferred pursuant to the exercise of a statutory stock option from wages for employment and income tax withholding purposes.