Glossary
Definition
Stock Options
The right to buy company shares at a fixed price within a set period.
A stock option gives the holder the right (but not obligation) to buy a company's shares at a predetermined price (the 'strike price') before an expiration date. Employee stock options (ESOs) are a major form of executive compensation. If the stock price rises above the strike price, options are 'in the money' and can generate significant wealth.
Frequently Asked Questions
How do stock options create wealth for executives?
If a CEO receives options to buy 1 million shares at $10, and the stock later trades at $100, exercising those options creates $90 million in profit. This is how many technology executives have become extremely wealthy.