Bullet Dodging

AAA

DEFINITION of 'Bullet Dodging'

A form of option granting in which the award of options is delayed until a piece of bad news becomes known to the public and the stock's price falls. Because an option's strike price is often determined by what the underlying stock's price is on the grant date, waiting for the stock price to drop allows option holders to gain some additional benefit in the form of a lowered strike price.

INVESTOPEDIA EXPLAINS 'Bullet Dodging'

For example, suppose that XYZ Corp. had planned to grant stock options for its CEO on May 7, 2007. However, XYZ Corp. is going to release its earnings a week later, on May 14, and it is believed that the earnings will be under guidance. Because the company didn't meet its earnings projections, the share price will likely drop. Moving the option-granting date to May 15 is likely to cause the option's strike price to be lower compared to if the grant date had been on May 7.

This practice is fairly controversial, as some feel that bullet dodging may be a form of insider trading because the option holder, who is usually a member of the company's management, will benefit by using information that is not available to the public.

RELATED TERMS
  1. Stop Trading On Congressional Knowledge ...

    A bipartisan bill signed into law Apr. 4, 2012 by President Barack ...
  2. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  3. Options Backdating

    The process of granting an option that is dated prior to the ...
  4. Spring Loading

    An option-granting practice in which options are granted at a ...
  5. Insider

    A director or senior officer of a company, as well as any person ...
  6. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
Related Articles
  1. The Dangers Of Options Backdating
    Options & Futures

    The Dangers Of Options Backdating

  2. Should Employees Be Compensated With ...
    Options & Futures

    Should Employees Be Compensated With ...

  3. The Benefits And Value Of Stock Options
    Options & Futures

    The Benefits And Value Of Stock Options

  4. What is options backdating?
    Options & Futures

    What is options backdating?

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center