Good read — the author gives you a comprehensive explanation and definition of a stock option — I am quite sure there are small business owners out there who are not clear on what-is and how-handled ……
Excerpt: What is a backdated option? Indeed, you may not even be quite sure about what an option is and how it works. So, let me start there.
An option is a type of security that gives a person the right to buy a share of a company’s stock at a specified price. For example, an option might give you the right to buy a share of Google at $5. That would be a very valuable option. Or an option might give you the right to buy a share of Google at $5,000. That would not be so valuable.
Typically, when a company gives options to its employees as a form of compensation, the employees are allowed to buy shares in the company (which is called “exercising the options”), and the price at which they may buy the stock is called the option’s “exercise price,” or “strike price.” Typically, however, they can exercise their options only after a defined span of time (called “the vesting period”) and before a certain date (called “the expiration date”).