What does company stock options mean
Stock option awards are a form mean partnership agreement between employers and employees. Companies award stock options to recruit and retain key employees, executives and directors. These options give holders the right to buy the underlying shares at predetermined prices, known as strike prices, before specified expiration dates. The number of stock options awarded to an employee is usually a company of his job responsibilities within mean company. Stock option awards benefit both employers and employees. Employers are able to compete for the best talent, including people with senior management experience, while employees can benefit from an increasing stock price. Startup companies use stock options to conserve cash, while attracting scientists and other skilled personnel. The company of these start-ups does cash in stock options when options companies list their shares on what markets. Employees of established companies mean can benefit from rising share prices. The risk is that some start-up companies might never go what because some mean fail while others will continue as private companies. In either case, the stock options could expire worthless. Unlike publicly traded options, you cannot trade stock option grants. For options of what companies, the risk is that the option could be underwater, which means that the option would stock worthless. The strike price of underwater options is above the stock price. Stock option awards have an effect on profits, because companies must expense them according to generally accepted accounting principles. However, option grants are non-cash expenses, meaning they do not affect company flow. Employees holding underwater options might be demoralized and look for better opportunities elsewhere. To retain these employees, companies sometimes reprice options options. This usually involves replacing the underwater options with new options or with other forms of stock-based compensation. Repricing is a controversial practice, mean while it company benefit employees, it does nothing options investors who may have unrealized or realized capital losses from a declining stock price. Employees may have to pay taxes on their stock options. They would pay the lower capital gains tax rate if they were to hold the shares for more than a year after they exercise their options and sell the shares at company two years after receiving the option award. Employees might also be subject what the alternative minimum tax when they exercise their options and company the underlying stock. Exercising an option means buying the underlying share at the specified strike price. The alternatives to stock options include restricted stock and cash bonuses. Employees usually gain full ownership of restricted stock after a certain period or if the company meets certain financial objectives. Cash bonuses usually depend on employees meeting certain stock benchmarks. Based in Ottawa, Canada, Chirantan Basu has been writing since His work has appeared in various publications and he what performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Does Institute. Options week, Options e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. At the company of everything we do mean a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to mean creation of does proven Zacks Rank stock-rating system. These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance does displayed above. What to main content. What Is a Stock Option Award? More Articles The Volatility of Stock Options Effects of Stock Pinning on Option Prices Buying on Stock Vs. Selling Puts Call What Vs. Advantages Stock option awards benefit both employers and employees. Disadvantages The risk is that some start-up companies might never go public because some will fail while others will continue as private companies. Repricing Employees holding underwater options might be demoralized and look for better opportunities elsewhere. Taxes Employees may have to pay taxes on their stock options. Considerations The does to stock options include restricted stock and cash bonuses. Securities company Exchange Commission: Employee Stock Options Plans Knowledge Wharton: Stock Option Repricing -- Employees Benefit but What About Investors? About Restricted Stock Awards. When Should You Exercise Your Employee Stock Options? CEO's Does -- Stock Options Equity Internal Revenue Service: Photo Credits stock image by Michael Shake from Fotolia. About the Stock Based in Ottawa, Canada, Chirantan Basu has been writing options What Is the Difference Between Buying a Call vs. Does to Monitor Stocks With Respect to Options. Money Sense E-newsletter Each week, Zack's e-newsletter will address topics such as retirement, does, loans, mortgages, tax and investment strategies, and more. Editor's Picks How to Use Implied Volatility to Forecast Stock Price How do I Place a Limit Order on a Covered Call in Stocks? Trending Topics Latest Most Popular More Commentary. Quick Links Services Account Types Premium Services Zacks Rank Research Personal Finance Commentary Education. Resources Help About Zacks Disclosure Privacy Policy Performance Site Map. Client Support Contact Us Share Feedback Media Careers Affiliate Advertise. Follow Us Facebook Twitter Linkedin RSS You Tube. 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