Stock option

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Stock option

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Similar to the previous settings, first it considers the executive stock option plans and then only employee stock option plans. Equation 3 defines these specifications.
This explains the use of stock options to increase the efficiency of monitoring in case of executive stock option plans, and to get the economies of scale in monitoring in case of employee stock option plans. The results also indicate that large and diversified firms tend to use stock options both for executives and for employees.
Company handbooks on employee stock option plans typically do not make any distinction between executive and nonexecutive stock option plans.
All employee stock option plans that do not meet the criteria of a noncompensatory plan are considered compensatory plans.
With about USD250.4m invested in treasury shares by IBC at present and accumulated since its inception, the treasury allowed it to use its regular dividend funds to repurchase common stock regularly on the open market or through private transactions and these will be held in treasury for reissue for different corporate purposes as well as employee stock option plans.
However, for tax years beginning after 1997, employee stock option plans (ESOPs) as S shareholders become slightly more attractive; they may make cash distributions to retiring participants under TRA `97 Section 1506(a).
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.
However, there are significant consequences to being qualified, particularly for employee stock option plans (ESOPs).
The final regulations also prohibit aggregation of 401(k) plans with employee stock option plans for coverage and discrimination testing, family aggregation for purposes of discrimination, compensation and other issues.
401(a) and 501(c)(3) (e.g., charitable organizations, private foundations, pension funds and employee stock option plans) would be eligible S shareholders, but IRAs and charitable remainder trusts would not.
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.

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