Cheap Stock

AAA

DEFINITION of 'Cheap Stock'

The illegal practice of issuing stock options at artificially low prices shortly before an initial public offering.

Often underwriters will require a company to have more qualified management before they can go public. They attract these qualified individuals by giving options with a low exercise price.

INVESTOPEDIA EXPLAINS 'Cheap Stock'

Any option granted at a price that turns out to be only a small fraction of the actual IPO price will likely be regarded as cheap.

RELATED TERMS
  1. Exercise

    To put into effect the right specified in a contract. In options ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Bidder

    The party offering to buy an asset from a seller at a specific ...
  5. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  6. Short Put

    A type of strategy regarding a put option, which is a contract ...
Related Articles
  1. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  2. The Importance Of Corporate Transparency
    Investing Basics

    The Importance Of Corporate Transparency

  3. The
    Options & Futures

    The "True" Cost Of Stock Options

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

    Should Employees Be Compensated With ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center