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. Insider

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

    A non-public fact regarding the plans or condition of a publicly ...
  4. Insider Trading

    The buying or selling of a security by someone who has access ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Sarbanes-Oxley Act Of 2002 - SOX

    An act passed by U.S. Congress in 2002 to protect investors from ...
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. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center