Stock option

Also found in: Dictionary, Thesaurus, Medical, Legal, Encyclopedia, Wikipedia.

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 ?
The ruling then focuses on whether nonqualified deferred compensation and stock options are "property" within the meaning of Sec.
However, many companies that grant stock options are leery about providing this guidance.
Where an employee is taxed on the date of the exercise of a stock option or upon the vesting of restricted property, IRS rulings dealing with income sourcing suggest that the "spread" (the excess of market value over price paid) or other compensation is sourced based on where the employee worked starting on date of grant and ending on date of exercise -- a period that could have seen a mobile employee performing services in multiple domestic and foreign taxing jurisdictions.
With the issuance of Notice 2001-14, the Service in essence declares a moratorium on the assessment of employment tax and income tax withholding on the exercise of statutory stock options, and it will not treat the disqualifying disposition of stock acquired pursuant to an employee's exercise of a statutory option as subject to income tax withholding for those options exercised through Jan.
In the property settlement, Harold retains 100 percent of the stock options in his employer's stock and Maude receives community property cash of equal value.
Powell said the FASB position that a company directly or indirectly reprices its stock options when it changes the terms of its plan under Opinion no.
The generally accepted economic-pricing model for valuing unexercised options is the Black-Scholes model, which is one of the safe harbor methods approved by the IRS for valuing nonpublicly traded compensatory stock options for gift tax purposes.
The answer: From the "shares reserved" pool, which represents the number of shares of common stock that a public company specifically earmarks for purposes of funding stock option grants (or any type of equity compensation grant).
Henry also advised his accountant to contact IMED's stock option program managers if he had further questions about the options.