Cheap Stock


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.


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.

  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. Put-Call Parity

    A principle that defines the relationship between the price of ...
  5. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  6. Employee Stock Option - ESO

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