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Author: RiverCityFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: 1st Time Rec Stock Options Date: 3/18/2001 2:11 PM
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WNL says: "the options' strike price, or price which your wife must pay to exercise her options and convert them to shares, will almost certainly be at or higher than current market price. If they were below market price, they would provide no incentive - and they would have to be expensed by the company in its current financial statements."

This hasn't been my experience, but experiences vary. In a typical stock option plan, employees are granted the right the purchase a certain number of shares of the company's stock, at a certain price, over a certain time period. This price may be lower than the current market value of the stock at the time the option is awarded.

There are tax consequences, of course, for both employee and employer. Tax treatment of the options depends on whether they are "non-qualified" or "incentive stock options". With non-qualified options, the employee realizes regular income when exercising the options -- the income is the difference between the stock's price on the day of the exercise and the option price, and the employer is entitled to a compensation deduction for the same amount.

With incentive stock options, the profit can be deferred until the stock is sold and will be treated as long-term capital gains if the employee retains the stock for 18 months or more.



More info:
http://options.about.com/library/weekly/aa031201a.htm
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