Backdating option stock Free live chat with out joining
Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within a two-month period.
The company would then grant the option but date it at or near its lowest point.
This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.
Cases of backdating employee stock options have drawn public and media attention.
This adjustment to the filing window came in with the Sarbanes-Oxley legislation.
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.
ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.
Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.
The act of options backdating has become much more difficult as companies are now required to report the granting of options to the SEC within two business days.
Technically, any options granted today should bear a strike price of .
In a backdated situation, however, the options would be granted today (August 16), but their listed day of granting would be June 1 in order to give the options a lower strike price.
The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.
The number of shares subject to option was 250,000 and the exercise price was (the trough in the stock price graph below.) Given a year-end price of , the intrinsic value of the options at the end of the year was (-) x 250,000 = ,750,000.