New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Auto CDs &
Retirement Checking &
Taxes Personal

Stock options glossary

Even if you don't have a complete command of financial jargon, a few basic words and phrases will help you navigate your company's stock option plan:

Grant: This is an invitation from your company to buy its stock at a certain price during a certain period of time.

Exercise: With a regular stock option plan, when you pay for the stock, you have exercised your options.

With employee stock purchase plans, you make periodic payments through payroll deductions. When the company buys the stock for you, you have exercised your options.

- advertisement -

Vested: When stocks vest, that means you can own it in your own name. The typical stock option plan works in stages, almost like a game of "Mother-May-I?" A company invites you to buy its stock at a particular price. If you say yes, then you have to wait a period of time before you are actually allowed to buy the stock. Once the stock is vested, the power shifts to the employee. You can buy it, not buy it or wait until the clock runs out.

In some plans, you're allowed to buy options before they vest, says Kaye A. Thomas, author of "Consider Your Options."

"These plans are usually offered only by pre-IPO companies," he says. And if you leave the company, it will likely demand the right to buy back any unvested shares, he adds.

Spread: Also known as the "bargain element," this is the difference between what a stock is worth on the date you exercise it and the price you pay.

Under water: When the market value of a stock sinks below the exercise price of an option, the option has no value or is "under water."

Capital gains tax: You pay this tax on money you make through investments. Usually, depending on your tax bracket and a host of other factors, the rate for long-term capital gains tax is less than for income tax.

Alternative minimum tax: The ATM involves a different set of rules to calculate your annual tax return. If you exercise incentive stock options, you'll have to calculate your taxes both ways -- and pay based on the higher total.

Dana Dratch is a freelance writer based in Atlanta.

-- Posted: May 20, 2004

Insurance Guide
Print   E-mail
Term life
condo insurance
Offbeat Insurance
Is your pet a 'bad dog'?
Test your insurance IQ
Higher premiums? Blame it on the mold

Handy Tools

Clickable map: Find your state insurance regulator

Understanding insurance lingo
Health insurance terms
How much life insurance do I need?
Term vs. permanent
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here. ®, Copyright © 2015 Bankrate, Inc., All Rights Reserved, Terms of Use.