Employee Stock Options - Introduction

Employee stock options give the employee the right to purchase a quantity of employer shares at a set price during a pre-determined time frame. This section discusses both incentive stock options (ISOs) and non-qualified stock options (NQSOs) as to mechanics (e.g. grant, exercise, disposition and the rules applying thereto), tax ramifications and planning opportunities.

While both ISOs and NQSOs operate conceptually much like standardized options traded on the Chicago Board Options Exchange (CBOE), the difference is that they are acquired through association with an employer and the differences as to liquidity, rules on exercise and disposition and taxation are significant.

Incentive Stock Options


Related Articles
  1. Investing Basics

    Introduction To Incentive Stock Options

    Here are some basic highlights of how ISOs work and the ways they can be used.
  2. Investing Basics

    Get The Most Out Of Employee Stock Options

    These plans can be lucrative for employees - if they know how to avoid unnecessary taxes.
  3. Options & Futures

    10 Tax Tips For Stock Options

    Options and restricted stock are a great perk--if you don't get caught in a tax trap. Here's what you need to know.
  4. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  5. Options & Futures

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  6. Options & Futures

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  7. Options & Futures

    Introduction - Day Trading and Options

    Options have not been a tradition part of day-trading strategy, but this is quickly changing.
  8. Options & Futures

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  9. Options & Futures

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
  10. Investing Basics

    A Beginner's Guide to Investing in Company Stock Plans

    There are certain advantages to investing in your employer's stock but there are some potential drawbacks to be aware of.
RELATED TERMS
  1. Qualifying Disposition

    A sale, transfer or exchange of stock obtained through a qualified ...
  2. Grant

    The issuance of an award, such as a stock option, to key employees ...
  3. Non-Qualified Stock Option - NSO

    A type of employee stock option where you pay ordinary income ...
  4. Equity Compensation

    This is one way to attract and retain employees to a startup ...
  5. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  6. ISO 14001

    One of the subsets of ISO 14000. ISO 14001 pertains specifically ...
RELATED FAQS
  1. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  2. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  3. What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options ... Read Answer >>
  4. When holding an option through expiration date, are you automatically paid any profits, ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
  5. I've noticed executives buy a lot of stock below market value, and then they sell ...

    On October 30, 2006, a Google executive officer purchased 2,541 shares of Google at $9 per share and sold these same shares ... Read Answer >>
  6. What is index option trading and how does it work?

    Learn about stock index options, including differences between single stock options and index options, and understand different ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center