Advertisement

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.

Advertisement - Article continues below

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
Advertisement

Recommended

Economic indicators
Glossary

Economic indicators

An economic indicator is any statistic that allows us to analyse how the economy is performing or is likely to perform in future.
31 Jul 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
14 Jul 2020
Barbell strategy
Glossary

Barbell strategy

A “barbell… investment strategy means weighting a portfolio towards the two extreme ends of an asset class with nothing in the middle.
8 Jul 2020

Most Popular

Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020