option exchange

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Option Exchange

A securities exchange that primarily or exclusively trades option contracts. Often, options are traded on an exchange along with futures and other derivatives. However, some exchanges, like the CBOE, specialize in option transactions.

option exchange

An organized securities exchange, the primary purpose of which is to provide a location and framework for trading standardized option contracts. An option exchange handles its trading much as a stock exchange handles its trading in stocks and bonds. Until 1973, with the opening of the Chicago Board Options Exchange, all options were traded through a limited number of firms specializing in them. Most of the options traded at that time were so unique that it was difficult or impossible to close a position in one before its expiration.
References in periodicals archive ?
Cardinal Health $18.35 Reduced number of No options with a lower exercise price Domino's Pizza $8.62 Reduced number of Yes options with a lower exercise price Ebay $22.49 Reduced number of No options with a lower exercise price Electronic Arts $19.73 Reduced number of No options with a lower exercise price Google $306.50 Reduced exercise price Yes to estimated $300/share Intel $19.59 Reduced number of No options with a lower exercise price Motorola $5.78 Reduced number of No options with a lower Starbucks $11.50 Reduced number of No options with a lower exercise price In most cases, the stock option exchanges mentioned above were structured so that the fair value of the new options was nearly equal to the fair value of the surrendered options.
Under SFAS 123R (paragraph 51), a company must recognize the unrecognized value of the original stock option grant and the incremental cost incurred as a result of a stock option exchange program.
A company can make the stock option exchange accounting neutral by decreasing the number of shares received in the exchange to a level that makes the fair value of the repriced options equal to the fair value of the options received on the original grant date.
Often, the most important consequence for a company considering a stock option exchange is the accounting treatment.
During 2009, several high-profile companies decided to complete stock option exchange programs for employee stock options that were severely underwater.
Google and EA were exceptions to the trend of structuring accounting-neutral option exchange programs.
Lastly, some arguments speak against 6&1 option exchanges as an employee retention tool.
For example, CNET Communications, which offered an option exchange in June 2002, used these ratios for each new option:
With increased scrutiny of executive compensation, companies have restricted the eligibility for option exchange offers.
Some option exchanges began trading put and call equity options with flexible terms (strike price, expiration date and exercise style (e.g., American, European, etc.)).