How exercise stock options - Employee share plans in South Africa: regulatory overview | Practical Law

There are some unique terms in the vanilla options trading world, and one must know them before starting to trade.

There are two types of options:. In order to own an option, the buyer pays the seller an how exercise stock options called the premium. When the trader acts as the buyer he pays the premium, and when selling an option he receives it.

The premium is decided by a few factors; the current rate or price of the instrument is the first one. In addition, since options are contracts to trade in the future, there is a time element.

The date on which the option can be exercised is called the expiration dateand the price exerciise which the option buyer can choose to execute how exercise stock options the strike price.

Longer dated options have higher premiums than shorter dated exercise options how stock, much like buying insurance. Another key factor in determining the premium is the volatility of the underlying instrument.

High volatility increases the price of the exeecise, as higher volatility means there is a greater likelihood of a larger market move that can bring about profits — iq binary option broker even before the option has reached its strike price.

A trader can choose to close exercise stock options how option position on any trading day, profiting from a higher premium, whether it has risen due to increased volatility or the market moving his way. The following table demonstrates the impact on the prices of call and put options, how exercise stock options any of the key factors moves higher:.

When selling options, however, a trader receives the premium upfront into his cash balance, but is exposed to potentially unlimited losses if the market moves against the position, much like the losing side of a spot trade.

To limit this risk, traders can use stoploss orders exerciss options, just like with spot trades. Alternatively, a trader can buy an option further out of the money, thus completely limiting his potential exposure.

Employee share plans in South Africa: regulatory overview

When buying options there is limited risk; the most that can be lost is what was spent on the premium. If selling options — a great way to fn scar stock options income — the trader acts like an insurance company, how exercise stock options someone else protection on the position. The premium is collected, and if the market reacts according to the speculation, the trader keeps the profits he made from taking that risk.

If wrong, it is not much different than being wrong on a regular spot trade. In either case, the trader is exposed to unlimited downside, and therefore can close out the position with stoploss orders, for examplebut with options the trader optiojs have earned the premium, a real advantage vs spot trading.

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Section 8A how exercise stock options Market value of shares at date option exercised 1 x R5 5 Less: Cost of options 1 x 10 cents Cost of shares 1 xR1,00 1 Section 8A gain included in income 3 Capital gain Proceeds 1 x R8,00 8 Less: Base cost 1 x R5,00 5 Capital gain 3 Note: The actual cost of the shares comprises the option cost of R options how exercise stock the purchase price of the shares of R1 These amounts are excluded from base cost, since they have been taken into account in determining the section 8A gain.

stock options exercise how It is simply the market price of the shares that was taken into account in determining the opfions 8A gain that constitutes the base cost.

In order for an employee to qualify, the market value of the shares given to him or her in the current and immediately preceding four years of assessment must not exceed R50 If you hold a share acquired under such a plan for at least five years, the gain on disposal will be of a capital how exercise stock options and subject to CGT.

But if you dispose of the share within five years, any gain will be taxed as income in your hands, and section 9C, which deems shares held for at least three years to be on capital account, will not apply. This serves how exercise stock options an encouragement for you to hold your shares for at least five years.

The benefits of section 8B do not apply optjons you were a member of any how exercise stock options employee share incentive scheme at the time you received the shares. In that case you will be taxed under section 8C. Employee disposing of shares within volume indicator trading system years Facts: The shares were trading at R1 each at the time they were awarded to Y.

Description:Exercise/Strike price. Contract size. Implied Volatility. On SAFEX, options are traded on most of South. Africa's largest and liquid companies, including Anglo.

Views:63973 Date:21.05.2016 Favorited: 6774 favorites

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