Reload Option

AAA

DEFINITION of 'Reload Option'

A type of employee compensation in which additional stock options are granted upon the exercise of the previously granted options. Reload options are features which, rather than pay the employee in cash, upon being exercised, the employee is compensated in shares. The exercise price of the newly granted option is set to the market price of the shares on the date the reload option is granted.

INVESTOPEDIA EXPLAINS 'Reload Option'

A reload option is a stock-for-stock option. For example, an employee who is granted a reload stock option with a term of 10 years but who exercises the option after six years may be granted a reload option for shares with a term of four years. The new grant is for the same number of years as the underlying option. Rather than having to come up with the money required to pay for the shares of the underlying option, the employee is given a new option which intrinsically has value.


For example a CEO, Dave, holds a reload option. Each option is to purchase 1,000 shares at $25 each. If the stock price goes up to $40, Dave could exercise by delivering 625 shares and receiving 375 shares (this is the stock-for-stock option). Dave would receive a new option to purchase 625 shares for $40 (this is the reload). Essentially, Dave will still gain or lose on 1,000 shares.

RELATED TERMS
  1. Evergreen Option

    A type of employee stock option plan in which additional shares ...
  2. Incentive Stock Option - ISO

    A type of employee stock option with a tax benefit, when you ...
  3. Option

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

    The exercise of an option prior to its expiration date. Early ...
  5. Exercise

    To put into effect the right specified in a contract. In options ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
RELATED FAQS
  1. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  2. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  3. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  4. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>
  5. How are rights distributed in a rights offering?

    In a rights offering, rights are distributed to shareholders based on the number of shares they already own. What Is a Rights ... Read Full Answer >>
  6. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
Related Articles
  1. Options & Futures

    How to Make Money by Trading Index Options

    Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction.
  2. Investing

    4 Structured Product Types Wealthy Clients Love

    High-net-worth investors find structured products appealing for a variety of reasons. Here's a look at four types.
  3. Mutual Funds & ETFs

    5 Disadvantages of Mutual Funds Compared to ETFs

    In the mutual funds vs. exchange-traded funds debate, ETFs have some clear advantages.
  4. Options & Futures

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  5. Investing Basics

    Explaining Gamma

    Gamma is a measurement of how fast the delta of an option’s price changes after a 1-point movement in the underlying security.
  6. Economics

    Will the Selloff in China Hurt the Global Economy?

    Though China is the world’s second largest economy, its volatility in the stock market is unlikely to have an impact on the global or Chinese economy.
  7. Investing

    Looking To Begin Trading In The Stock Market?

    If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan.
  8. Investing Basics

    How Does Delta Hedging Work?

    Delta hedging is a derivative trading strategy that attempts to reduce -- or eliminate -- the risk caused by price changes in the underlying asset.
  9. Options & Futures

    Tesla Stock Too Expensive? Trade Tesla Options

    Tesla Motors is trading around $260 a share, making it too expensive for many investors. Options offer a low-cost way to trade in Tesla.
  10. Options & Futures

    Stock Options To Trade On Intraday Momentum Index

    The intraday momentum index, or the IMI, can offer a reliable way to profit on options, but only for the right stocks.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!