Strike Price Is the Market Price. Coincidence?

Topics: Stock, Term, Strike price Pages: 3 (931 words) Published: September 17, 2012
The customary practice in granting stock options is to have the strike price set as the market price on the day the grant is made.   Grantees can later sell these stock shares at a higher price and make a profit.  Over the last several years, several companies have been accused of issuing stock options to their top executives at the lowest stock price of the year.   This could lead to very large profits.  Such manipulation of the strike price is unethical and in some cases may be illegal.  In some companies, granting options at the lowest price happened several years in a row. When asked about this practice, a company spokesperson responded, "It's just a coincidence. There are about 250 trading days in a year, so there is a reasonable chance that the option price just happened to be lowest of the year." Discuss.

It is highly probable that the “coincidence” the spokesperson mentioned was just that. With 250 days of trading, considering the possible volatility of the day, the stock did hit its record low, and ‘coincidental warning signals’ were apparent to the market that caused a downturn to warrant the new low price. Yes, it could have been mere coincidence. However, in spite of obvious volatility, a reference to chance may just have been a decoy to deflect another more offending event. The resulting financial climate currently being experienced can be attributed to several factors, many of which this author is unable to competently speak to. However, it is no secret that high profile CEOs and similar financial executives are courted by boards of directors in the interest of profitability and it is done through, what is perceived to the unfamiliar, outrageous offerings of great salaries, bonuses, retirement packages, stock options, and the like. It could be argued that the highly touted “pay for performance” incentive is gradually being interpreted as ‘pay to play’. Enter Thomas Wolfe’s “masters of the universe” come to life. Since the recent financial...
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