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 ?
employee stock option plan participants concerning the method or process used by Salomon with regard to clients' stock options and the handling of their accounts.
This stock repurchase program gives us an effective tool to fund our employee stock option plan," said Albert R.
Practitioners' understanding of how employee stock option plans (ESOPs) operate within S corporations continues to evolve.
The controversy that led to the proposed changes involves the measurement and recognition of compensation expense for employee stock option plans.
Most (if not all) employee stock option plans should be drafted to allow for both ISOs and non-ISOs to be granted under the same plan.
Eichen did not think the trend was a result of the controversy over an accounting standard on employee stock option plans proposed by the Financial Accounting Standards Board.
This month's column discusses consensuses reached by the FASB Emerging Issues Task Force EITF or task force) concerning accounting for changes to fixed employee stock option plans resulting from an eqity restructuring, and concerning allocating basis to individual assets and liabilities acquired in certain leveraged buyout transactions.
This EITF issue, Changes to Fixed Employee Stock Option Plans as a Result of Equity Restructuring, illustrates the applicability of APB Opinion no.
In June 1993, the FASB issued an Exposure Draft on accounting for employee stock options, which would have required expense recognition for virtually all employee stock option plans.
The joint venture's product line will include traditional stock transfer services, proxy tabulation and the administration of dividend reinvestment plans as well as proxy solicitation programs, corporate reorganization processing and control, the development and administration of employee stock option plans and a comprehensive stock watch monitoring service.
Shares acquired will be available for use under the Company's employee stock option plans and for other general corporate purposes.
Shares repurchased, if any, will be held as treasury shares and will be available for general corporate purposes including existing or future employee stock option plans.

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