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 ?
Typical controls over stock option compensation are mostly manual because the process involves heterogeneous systems and multiple sources of information.
The guidance from FASB is clear: Companies must determine and report the fair value of stock options they use to compensate employees.
While share-based payment arrangements include stock options, restricted and unrestricted stock, share appreciation rights and employee stock purchase plans, this article focuses on accounting for stock options.
COMPANIES THAT GRANT STOCK OPTIONS may be leery about providing this guidance for fear of legal troubles, if the stock falls.
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.
Unlike other products that only focus on a single aspect of stock plan administration, such as tracking numbers for a stock option plan, Two Step's Equity Focus also brings together all of the critical corporate governance information and legal documents that support stock option administration - helping companies ensure proper records management and easier compliance with new regulations.
71-52, the IRS determined that an employer did not make a payment of wages for purposes of assessing employment or income tax withholding at the time of the exercise of the qualified stock options under former Sec.
Implicitly, the IRS also does not regard stock options as "property" subject to nonrecognition under Sec.
44 became effective July 1, 2000, and, with some exceptions, will apply prospectively to new stock option awards, exchanges and modifications and changes in status that occur on or after that date.
The Company backdated certain other stock option grants by selecting a grant date and corresponding exercise price that preceded the date that the Company actually determined to make such grants.
Investors, analysts and the Financial Accounting Standards Board (FASB) tend to agree that stock option compensation is worth something and therefore should have an effect on a company's bottom line.