Stock options outstanding

If an option is correctly valued and exercised in such a way that it minimizes the tax consequences, it can contribute significantly to your overall wealth. Stock options may make up a substantial portion of the compensation paid to a corporate executive. However, they are not exactly the same as cash. Traditionally, companies have been using stock options to reward their top executives and align their interests with those of their shareholders.

Usually, option rights are vested, which means that you can only exercise a certain percentage of your stock options at different points in time. In most cases, there is a time limit for exercising stock options, which is generally 10 years after they are granted.

An outstanding stock option refers to an option contract that has not been exercised and has not expired. An option contract has monetary and intrinsic value. There are several things you can do with a stock option, including:. An outstanding stock option contract can be a short-term or medium-term investment. It can be traded for a relatively small price or exercised for a much greater investment of the underlying stock. An investor needs to know the price of an open contract and that one contract covers shares of underlying stock.

MANAGING YOUR MONEY

It is important to note that you can exercise an American-style option any time between the purchase and expiration dates, while a European-style option can only be exercised when the contract expires. You have to make sure that the expiration dates of your outstanding stock options are properly managed, because missing an expiration date can result in the loss of an opportunity to buy or sell stock at a good price.

Also called shares outstanding, outstanding shares refer to the stock of a company that is currently owned by its shareholders. They include share blocks owned by institutional investors and restricted shares held by the officers and insiders of the company.

The amount of outstanding shares facilitates the calculation of key metrics such as the company's market capitalization, earnings per share, and cash flow per share. The amount is not static and can fluctuate significantly over time.

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Assume that options and warrants are exercised at the beginning of the reporting period. If they were actually exercised later in the reporting period, use the actual date of exercise. The proceeds garnered by the presumed option or warrant exercise is assumed to be used to purchase common stock at the average market price during the reporting period.

The difference between the number of shares assumed to have been issued and the number of shares assumed to have been purchased is then added to the denominator of the computation of diluted earnings per share. This is a required calculation for a publicly-held company , since all public entities must report their diluted earnings per share on the face of the income statement. The only exception is when a business has such a simple capital structure that the diluted earnings per share figure is the same as its basic earnings per share.

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