Options Trading Tutorial

if an employee exercises his stock options, does that increase or decrease the share price?

if an employee exercises his stock options, does that increase or decrease the share price?

Public Comments

1. It has no direct affect on the market price.
2. The employee getting shares below market devalues all other shareholders positions a some amount. There's no free lunch here - that's why this all is supposed to be disclosed. If it's a large company - and the share count is relatively low, then the market price won't change much. In a small cap stock, with a large share count, it could be a marked change.
3. Well you need to consider what makes a stocks price go up or down. Lets look at the basics, fundamentals, technicals, and overall supply and demand. Each stock has a fixed number of shares out, refered to shares outstanding. Many times investors look if insiders are buying or selling to give a indication of sentiment. In very simple terms if this employee had a ton of stock and decided to dump it might effect the share price. It might not though if there is more demand based on technicals or fundamentals to outweigh the sellers position. He might dump all his shares and find that many are eager to pick his shares up at that price. http://www.stockinvestingideas.com/technical-analysis/ The definition of Fundamental Analysis Fundamental analysis is a stock valuation method that uses financial and economic analysis to predict the movement of stock prices. "The fundamental information that is analyzed can include a company's financial reports, and non-finanical information such as estimates of the growth of demand for competing products, industry comparisons, and economy-wide changes." "Technical Analysis is the study of prices and volume, for forecasting of future stock price or financial price movements.Technical analysis can help investors anticipate what is "likely" to happen to prices over time. Technical analysis is not an exact science. It's an art and takes considerable experience. But don't worry everyone with each knowledge can learn it." SUPPLY AND DEMAND "In economics, supply and demand describe market relations between prospective sellers and buyers of a good. The supply and demand model determines price and quantity sold in the market. The model is fundamental in microeconomic analysis of buyers and sellers and of their interactions in a market. It is also used as a point of departure for other economic models and theories. The model predicts that in a competitive market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity." So with out knowing specifically situation the answer is .......... It could but not necesarily affect the share price. cheers
4. usually the amounts are so small, that they don't have an effect. but theoretically, the effect is negative - for two reasons: 1. the only reason why s/he exercises is that the price of the stock is higher than the strike price of the option. so in effect, the existing shareholders' stake is getting diluted at a price lower than the market price. 2. usually, the employee then sells the stock, which creates additional supply that puts pressure on the price.
5. Neither, unless its for a substantial amount of daily trading volume.
6. There are too many factors influencing a share price so the exerising of an option could increase or decrease the price. It depends how the market rates the company.