Equity and Stock Option Software Key Terms

Learn equity and stock option software key terms before you buy

By Ann Starr

Small- to medium-sized businesses can reap tremendous benefits from offering their employees stock options. It motivates employees to feel more ownership in the success of the organization. Administering a stock option program can be complicated, however.

Good equity and stock option software can save businesses time and money because it streamlines and simplifies the administration of stock programs. Before you buy, you should familiarize yourself with some of the terms you will run across as you investigate the different software packages on the market.

In-the-money

An in-the-money stock option is when your stock option can be sold or exercised for a profit. Equity and stock option software can track those stock options that are in the money.
Try: AllBusiness.com defines in-the-money.

Vested stock options

Vested stock options are those which an employee has the right to exercise or sell. For example, when an employee leaves a company and they have vested stock options they maintain ownership of the stock with no consequences. Equity and stock option software can store information on vested stock options for employees.
Try: See Salary.com for more information on vested stock options.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 or SOX was enacted after some major corporate and accounting scandals which cost investors a great deal of money. The reforms were the most sweeping since the depression. Equity and stock option software is compliant with standards related to SOX.
Try: Sarbanes-Oxley Act has a complete overview of this act.

Black-Scholes model

The Black-Scholes model is a complicated formula that is used to assign prices to option contracts. The model was developed by professors at MIT and the University of Chicago and is used to calculate the probability of an option expiring in the money. Equity and stock option software has this model built into it.
Try: StreetAuthority defines the Black-Scholes model and gives you the formula, too.

FAS123(R)

FAS123(R) permits companies to choose among several models (Black-Sholes being one of them) for putting a dollar value on the unvested equity grants. Equity and stock option software has these models built into them.
Try: The National Center for Employee Ownership gives you all you need to know about this standard.

Bear spread

A bear spread is designed to be a limited profit, limited risk options trading strategy and is used when the options trader is somewhat bearish (believes the price will fall) on a security. A bear spread strategy can be entered into equity and stock option software.
Try: See InvestorWords.com for a succinct definition of a bear spread.