Employee Stock Options (ISO vs. NSO)
Incentive options get capital gains treatment; nonqualified options create income at exercise.
What is Employee Stock Options (ISO vs. NSO)?
Nonqualified stock options (NSOs): the spread at exercise is ordinary income; later gains are capital gains. Incentive stock options (ISOs): no regular income tax at grant or exercise (though the spread is an AMT preference item). If shares are held at least 2 years from grant and 1 year from exercise, all gain at sale is long-term capital gain.
Employee Stock Options (ISO vs. NSO): a worked example
Exercise at $20 when the stock is $50: an NSO creates $30 of ordinary income per share; an ISO creates none for regular tax, if the holding periods are met.
More terms in Equities, Funds & Alternatives
Shareholder Rights (Statutory vs. Cumulative Voting)
Voting, preemptive rights, dividends when declared, inspection, limited liability.
Types of Preferred Stock
Cumulative, convertible, callable, participating, and floating-rate preferred.
American Depositary Receipt (ADR)
A dollar-denominated receipt for foreign shares, traded in the US.
Rights vs. Warrants
Rights: short-term, below market. Warrants: long-term, above market.
Restricted & Control Stock (Rule 144)
Unregistered or insider-held stock with resale limits.
Technical Analysis
Forecasting prices from charts, trends, and trading volume.
Fundamental Analysis
Valuing a company from its financial statements, management, and industry.
Dividend Discount Model
A stock is worth the present value of its future dividends.