Share this Page URL

Lesson 1. Employee Stock Options > Different Types of Options - Pg. 3

Employee Stock Options Plain English 3 A round lot is 100 shares. The round lot is the usual unit of shares bought and sold. For example, two lots is 200 shares, five lots is 500 shares, and so on. The next significant phrase is specific number of shares. Employee stock options always carry a specific number of shares the employee can buy. One hundred shares is the typical number, since this is considered a round lot in investment circles. However there is no rule that says 100 is the magic number. The company is free to choose the number of shares tied to the option. Next let's look at the phrase the company's stock. The stock used for employee stock options comes from shares of its stock retained by the company and not bought on the open market. These shares are not available for purchase by the general public. This is necessary so the company can offer the stock at a fixed price. Stock on the open market is subject to many factors that work to change its price. A special class of stock is sometimes used for employee stock options only. This class of stock is not available on the open market and may or may not include voting rights. Whereas nonemployees can buy stock in the company at market prices, they would not be able to buy the special class of stock. Plain English A special class of stock is a type of stock issued with certain restrictions. For example, some classes of stock do not have voting rights. This leads us into the next important part of the definition: at a fixed price. This price, known as the grant price or strike price, is the amount you will pay for each share of stock if you choose to exercise your options. This price remains the same for the life of the option.