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.

BREAKING DOWN '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. Grant

    The issuance of an award, such as a stock option, to key employees ...
  2. Employee Stock Option - ESO

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

    The process of granting an option that is dated prior to the ...
  4. Option Schedule

    A list of options grants to an employee or employees of a company ...
  5. American Option

    An option that can be exercised anytime during its life. American ...
  6. Call On A Call

    A type of compound option in which the investor has the right ...
Related Articles
  1. Managing Wealth

    Get The Most Out Of Employee Stock Options

    These plans can be lucrative for employees - if they know how to avoid unnecessary taxes.
  2. Managing Wealth

    Get The Most Out Of Employee Stock Options

    Many corporations encourage employees to participate in the company’s growth by offering them a piece of the pie. That means employee stock options.
  3. Trading

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  4. Trading

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  5. Trading

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  6. Trading

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
  7. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  8. Investing

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
RELATED FAQS
  1. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  2. After exercising a put option, can I still hold my option contract in order to sell ...

    Once a put option contract has been exercised, that contract does not exist anymore. A put option grants you the right to ... Read Answer >>
  3. What is options backdating?

    Options backdating occurs when companies grant options to their executives that correspond to a day where there was a significantly ... Read Answer >>
  4. How can derivatives be used to earn income?

    Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>
  5. When holding an option through expiration date, are you automatically paid any profits, ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
  6. How is a put option exercised?

    A put option is a contract that gives the option holder the right, but not obligation, to sell a set amount of shares (1 ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center