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. Early Exercise

    The exercise of an option prior to its expiration date. Early ...
  2. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  3. Evergreen Option

    A type of employee stock option plan in which additional shares ...
  4. Exercise

    To put into effect the right specified in a contract. In options ...
  5. Incentive Stock Option - ISO

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

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Pick the Right Brokerage Account for ...
    Options & Futures

    Pick the Right Brokerage Account for ...

  2. The Top Technical Indicators For Options ...
    Options & Futures

    The Top Technical Indicators For Options ...

  3. Penny Stocks, Options and Trading on ...
    Options & Futures

    Penny Stocks, Options and Trading on ...

  4. Google Stock Too Expensive For You? ...
    Options & Futures

    Google Stock Too Expensive For You? ...

Hot Definitions
  1. Return On Sales - ROS

    A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". ...
  2. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  3. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  4. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  5. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  6. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
Trading Center