Category: Glossary

See exercise price.

You may have acquired different company stock lots by exercising different types of stock options—such as restricted stock units, incentive stock options, and/or non-qualified stock options. Since each may impact the stock’s tax treatment differently, it’s important to consider the origin when holding, selling, bequeathing, or donating company stock.

A type of compensation that you may receive from your company that allows you to purchase shares of stock at a predetermined stock price. You can exercise your option to buy company stock at a specific exercise price, although you aren’t required to do so. In general, the hope is that your company stock’s fair market value will have increased by the time you are able to buy shares at your exercise price, thus receiving a deep discount on your purchase. Stock options generally come in two types, Non-Qualified Stock Options and Incentive Stock Options.

Stock (or equity) lots are “batches” of shares you’ve acquired on the same date at the same price. For example, let’s say you exercise some stock options on May 15, 2023, receiving 1,000 shares for $5.25 each. You exercise more options a year later, and receive 1,000 more shares for $7.33 each. Then, your company distributes a stock dividend in the form of another 50 shares priced at $7.45 each. You now hold three stock lots. When you sell some of your shares, you can designate which lots you’re selling from. This dictates the shares’ cost basis, as well as whether any capital gains are short- or long-term. Identifying specific lots can help manage the tax ramifications of a sale.

See equity.

See cashless exercise.

A contractual right to receive the cash amount equal to the value of appreciated securities over a set price over a set period of time. Stock appreciation rights can be settled as cash or as shares of stock.