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 ?
Both the stock option plan and restricted share unit plan have been approved by the company's shareholders and no further approval from shareholders is required for these grants.
(3) Number of the stock options granted and number of eligible persons:
The share subscription period for stock options 2013B has expired on 30 April 2019, while the share subscription period for stock options 2013C started on 1 May 2018 and will end on 30 April 2020 and the share subscription period for stock options 2016A started on 1 May 2019 and will end on 30 April 2021.
Subject to the terms and conditions of the company's Inducement Award Programme and stock option agreement, each stock option has a ten year term and each stock option vests over four years, with 25% of the shares vesting on the first anniversary of the grant date and the remaining 75% of shares vesting quarterly thereafter, in each case, subject to the new employee's continued service.
The Stock Options have an expiry date of March 2, 2028 and will vest periodically, in accordance with the Stock Option Plan, upon the achievement of certain corporate milestones.
In years past, stock options were favored as a compensation mechanism because many companies did not have to recognize the expense on their income statements.
Stock options also known as share options in Malaysia is a new phenomenon among corporate entities in Malaysia.
According to the agency theory, the use of stock options can provide an alternative mechanism of controlling when direct monitoring is difficult (Holmstrom) (13); Jenson and Murphy (14)).
"The recent headlines of backdating and manipulating stock option grants have incited increased attention from auditors and regulators," said Patrick Taylor, CEO of Atlanta-based Oversight Systems, in an announcement.
123(R) requires companies to use deferred tax accounting for employee stock options. An option's tax attributes determine whether a deductible temporary difference arises when the company recognizes the option-related compensation expense on its financial statements.
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.
Lemmon, 2005, "Exercise Behavior, Valuation, and the Incentive Effects of Employee Stock Options", Journal of Financial Economics, 76:445-470