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It means you work for a really cheap company, or you make more money than they can deduct from their corporate taxes.
When you're awarded stock options, you have permission to buy at a stated price a stated amount of your company's stock. Maybe the option is for 100 shares at $20 per share. If the stock goes up to $30, you buy the stock with the option and you've made $10 per share, right away. In the language of derivatives, incentive stock options are a form of covered call. The tax treatment is a little goofy, tho: there are two holding periods. You have to hold the stock you buy at least two years from the time you receive the option, and at least one year from the time you exercise the option by purchasing the shares. If you meet both holding periods (which are concurrent, incidentally; most recipients exercise these within the first year they have them, so that when the two-year period ends they're free to sell) you pay taxes on the profits at the long-term capital gains rate, which is 15 percent. Sell before both have elapsed and you pay tax at the ordinary income tax rate, which is quite a bit higher.
Now understand, these things cost the company very little, if anything. If a company has to go out on the market and buy the options from a brokerage they'll pay the premium charged on an option...but they can also generate a new issue of stock, hold it, and allow the options to be redeemed for that stock. In that case, the options really are free.
Now as to the two reasons to issue options.
The first is if you're a rank-and-file worker who receives them. That's where the cheapness part comes in. An option is given in lieu of cash compensation...so if you pay a $100,000 employee half in cash and half in options, and you have a lot of these guys, you save a pile of money.
The other has to do with the tax treatment of executive compensation. The cash you pay an officer of your company is deductible from your pretax income up to the sum of $1 million. If you want to pay your CEO $20 million, and you want to be able to deduct it all, you have to give him $19 million in incentive stock options and $1 million in cash. The worst abuse of this I ever saw was the CEO of nVidia, the computer graphics chip maker. They paid him $35 million, but only $10,000 of it was in cash.
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What is Exercise of Stock Options?
Stock options is when you have a right to buy (or sell, but most commonly buy) a stock at a predetermined price.Exercising a stock option means that you use it: You buy the stocks at the agreed price, and the options expire as you spent them on the stock purchase.
What is 'put' trading?
Put trading means trading put options. Put options are options that are derived from stocks and it allows you to always sell the stock at the strike price before expiration no matter what price the stock is in future. As such, put options are bought when you expect the underlying stock to go DOWN.
What are IPO options good for?
Being a recent graduate from college means you are inexperienced for this economy. IPO stock options are for more experienced persons that have the means to provide for this type of stock or you may have help for friends, family or trusted broker that can direct you.
What is the meaning of IV or OIV in relation to Futures and Options market?
oiv means in stock market
What is the purpose of free stock options?
Free stock options are often in the form of employee stock options, where an employee is offered stock in the company as a form of non-monetary compensation.
Are there several ameritrade stock options?
There are many ameritrade stock options. They will provide you with their various stock options through there site on the internet. Visit it for more information.
Where can one find information on stock trade options?
One can find information on stock trade options by going to a local stock broker. They will have great advice on everything about the stock trade options.
What are the UK's stock options?
To learn more about where UK stock options are you will have to check UK stock options on Wikipedia to see where and what they are so you can find out more information on where to find them
What does per contract mean when dealing with stock trading?
Per contract refers to options trading. It means in one contract, there are 100 shares of that company's stock.
Where can you go to get stock options explained to you?
There are a number of sites where one can get stock options explained. One of these options includes videos that are available on YouTube under the topic of 'Explaining Stock Options Trading'. Another option is 'The Options Guide' website.
Where can I find advice on best stock options?
There are a lot of people that need advice with stock options. There are a few options you can either chat with an online representative or you can get in contact with a stock adviser.
What is the price of a ford stock option for the public?
Any stock website that gives you the price of the stock itself will have a link to the price of the options. For every stock there are many options to choose from ranging in price and date. Study Options Weekly before trading options.
