Posted on 11 August 2009
Tags: additional tax code requirements, dividend yield, employee compensation, Employee Stock Options, Employee Stock Options In USA, fair market value, financial economic theory volatility, financial statements, foreign exchange markets, Forex trading, FX market, IASB, Incentive stock options, income statement, interest rate, IRS, ISOs, Non-qualified stock options, NQSOs, NSOs, of employee stock options in the USA, over-reporting of income, overstate income, SEC, Stock Market Downturn, stock price, stocks, tax treatment of US Stock option, Taxation of Employee Stock Options in the USA, Types of Employee Stock Options, USA, USA GAAP, valuation model
In this article I will discuss the USA GAAP, Types of Employee Stock Options and Taxation of employee stock options in the USA.
USA GAAP
According to US generally accepted accounting principles that took effect before June 2005, stock options that are granted to employees did not need to be recognized as an expense on the income statement when granted, although in the notes the cost was disclosed to the financial statements. By this a potentially large form of employee compensation is allowed to not show up as an expense in the current year, and therefore, currently it overstate income. It has been asserted by many assert that over-reporting of income by such methods as this by American corporations had been one of the factors that contributed in the Stock Market Downturn of 2002.
In the US, employee stock options have to be expensed under US GAAP. Each company must initiate expensing stock options from the first reporting period of a fiscal year that began after June 15, 2005. As for most companies the fiscal years are the calendars, for most companies by this it means beginning with the first quarter of 2006.
As a result of this, companies by which the expensing options have not been voluntarily started will only see an income statement effect in fiscal year 2006. After the effective date, companies will be allowed, but they are not required, to restate prior-period results.
Read the full story
Posted on 10 August 2009
Tags: American call option, call option, Call option Purchases, call writer, commodities, currency trading, European call option, financial asset, financial contract, financial instrument, foreign exchange, foreign exchange market, forex, Forex Market, FX market, Incentive stock options, interest rates, open market, Option Price, physical asset, premium, shares of stock, Strike price, the buyer, the expiration date, the seller, the underlying instrument, tradable call option, treasury stock, underlying's spot price, warrant, writer
A financial contract between two parties i.e. the buyer and the seller of this type of option, is referred to as a call option. It is the option to buy shares of stock at a specified time in the future. Usually it is simply labeled a “call”. In call option, the buyer of the option has the right, but it is not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or “writer”) is obligated to sell the same commodity or financial instrument that is so decided by the buyer. For this right the buyer pays a fee that is referred to as a premium.
Buyer and Seller Anticipation
It is the will of the buyer of a call option that the price of the underlying instrument may rise in the future; the seller either anticipates that it will not rise, or he might be willing to give up some of the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price.
Read the full story
