Glossary

Share options

Share options give you the right to buy (or to sell) shares in a given company at a previously set price regardless of the current market price.

Share options give you the right to buy (or to sell) shares in a given company at a previously set price regardless of the current market price.

If, for example, shares in company A are trading at 75p, but you have options that allow you to buy 10,000 shares at a price of 25p (this is known as the 'strike price'), you could buy the shares, sell them immediately (this is referred to as 'exercising' your options), and make £5,000 profit.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Firms often issue options to employees in an effort to create incentives that align the interests of employees and shareholders. But employees should not accept options in lieu of salary without being aware of the very high risks attached to them.

If the market price of the employer's shares falls below the strike price of your options before they can be exercised (the "vesting date"), they are effectively worthless. When this happens, the options are referred to as being 'underwater'.

Advertisement

Most Popular

Visit/investments/stocks-and-shares/600863/sirius-minerals-anglo-american-takeover
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Visit/investments/commodities/gold/600874/gold-is-at-its-highest-level-in-years-heres-how-to-invest
Gold

Gold is at its highest level in years – here’s how to invest

Gold's rise at a time when the dollar is unnervingly strong isn't unheard of – but it is curious. John Stepek explains what's going on, and what it me…
21 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020