Glossary
Agreement
The Restricted Stock Unit or Stock Option Agreement is a legal document that sets forth the terms and conditions that apply to your grant.
Return to top of page.
Capital Gain
Arises when an investment is sold at a higher price than originally paid.
Capital Gains Tax
Tax on profits from the sale of capital assets. You pay capital gains tax when you sell shares of stock at a price that's higher than the market price of the stock on the day you acquired the shares. Long-term capital gains tax is generally lower than ordinary income tax.
Cash Purchase and Hold the Shares (type of exercise method for options)
With this exercise, you pay for all exercise costs with cash and hold the shares until you decide to sell them in the future.
Cashless Exercise and Sell for Cash (type of exercise method for options)
You exercise your options and simultaneously all shares. After paying the exercise costs, i.e., the strike price, commissions, and any applicable income tax withholding and transaction fees, you end up with cash. If you take a margin loan to cover your transaction costs, you would also need to repay the loan and any accrued interest.
Cashless Exercise and Sell to Cover (type of exercise method for options)
You exercise your options and simultaneously sell enough shares to cover the strike price, commissions, and any applicable income tax withholding and transaction fees. If you take a margin loan to cover your transaction costs, you would also need to repay the loan and any accrued interest.
Company
Amazon.com
Return to top of page.
Dividend Amount
The value of the last quarterly cash dividend or the number of shares owned in a stock dividend.
Return to top of page.
Employee Stock Option Exercise and Equity Award Agreement
The document that gives Charles Schwab & Co., Inc. the authority to act as your broker as part of an equity award transaction.
Exercise
The transaction in which you use your stock option to buy shares of stock, i.e., you exercise your right to buy stock at the option or strike price.
Exercise and Hold
The transaction in which you buy your companys stock at the strike price and hold shares in your Schwab account. Also referred to as Cash Purchase and Hold the Shares.
Exercise and Sell
The transaction in which you buy and then immediately sell your shares. There are two types of exercise and sell transactions. See also Cashless Exercise and Sell for Cash and Cashless Exercise and Sell to Cover.
Exercise Date
The date on which you exercise your options.
Exercise Price
Also referred to as the strike price, option price, or grant price; the price you pay per share when you exercise your options. The exercise price is set by your company.
Return to top of page.
Fair Market Value
The amount that a willing buyer would pay a willing seller for the stock of a company. The fair market value on the day stock options are granted typically determines the strike price.
Return to top of page.
Grant(s)
A block of stock options. Your employer grants options to buy a certain number of shares at a specific price for a limited period of time.
Grant Date
The date your option grant was made.
Grant I.D.
The number your company may assign to your grants.
Grant Price
Also referred to as the strike price, option price, or exercise price; the price you pay per share when you exercise your options. The grant price is set by your company.
Return to top of page.
Holding Period
The period of time you are required to hold stock you purchase through Incentive Stock Options before selling the shares. If you dont meet the holding period, you have what is known as a disqualifying disposition. This causes you to lose the otherwise favorable tax treatment associated with incentive stock options.
Return to top of page.
In the Money
The situation when the current market price of your company stock is higher than the strike price of the options you have been granted. You are in the money because you would make a spread by exercising stock options in this situation.
Incentive Stock Options (ISOs) (a.k.a. Qualified Stock Options)
ISOs are considered tax-advantaged stock options. When you exercise, you are not liable for ordinary income tax provided you hold the stock for at least one year after the exercise date and two years after the grant date. You are liable for capital gains taxes when you sell the shares at a gain, i.e. the difference between the market price on the exercise date and the sale price. Additional tax consequences may be applicable. Please contact your tax advisor with any questions.
Return to top of page.
Market Price
The current price or fair market value of the stock.
Return to top of page.
Nonqualified Stock Options (NQSOs)
Nonqualified stock options are the most common type of stock option granted. Because the spread earned between the grant date and the exercise date is considered to be compensation, it is subject to ordinary income tax and normal income tax withholding at the time you exercise your options. Any gain realized after you exercise is subject to capital gains tax treatment when you sell the shares. Depending on how long you hold the shares following exercise, your gain will be taxed at the short- or long-term capital gains tax rate. If the price of the stock goes down after exercise, you would be eligible to take a capital loss as with any other security you may own.
Return to top of page.
Option Price
Also referred to as the strike price, exercise price, or grant price; the price you pay per share when you exercise your options. The option price is set by your company.
Return to top of page.
Restricted Stock Unit (RSU)
Stock given to you by your company at no cost. Your ability to sell or transfer the shares is restricted until they are vested.
Return to top of page.
Sale Price
The specific market price at which a security is sold. Shares Units of a company's common stock, representing ownership.
Spread
The difference between a stock option's strike price and the market price.
Stock Option
The right to buy stock at a specific price at a time in the future for a set period of time or term. This right is subject to a vesting schedule that defines the time period over which you become entitled to exercise your options.
Strike Price
Also referred to as the option price, exercise price, or grant price; the price you pay per share when you exercise your options. The strike price is set by your company.
Return to top of page.
Under Water
The opposite of being in the money. The situation when the current market price of your company stock is lower than the strike price of the options you have been granted. Your options are under water because you would have a loss if you exercised your stock options in this situation.
Unvested Grant
The portion of a grant that has not yet met the vesting criteria as set forth in the Grant Agreement.
Return to top of page.
Vested Grant
A grant that has met the vesting criteria as set forth in the grant agreement. When a restricted stock unit vests, it is a taxable event and tax withholding is due. The most common method of funding this tax liability is to sell a portion of the now vested shares.
Vesting Period
The length of time or waiting period before restricted stock units vest. Vesting Schedule
This timetable shows the number and percentage of shares that become exercisable over particular time periods.
Return to top of page.
W-8BEN
This form is used by a foreign person to establish foreign status, to claim beneficial ownership of the income for which the form is being provided, and, if applicable, to claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty.
W-9
This form is used by U.S. persons, including a resident alien, to give your correct tax identification number (TIN) or social security number (SSN) to Charles Schwab for the purpose of certifying your TIN or SSN is correct, that you are not subject to backup withholding or to claim exemption from backup withholding if you are a U.S. exempt employee.
Return to top of page.
| 
Login to Equity Award Center
