ISOs can usually be exercised at a price below the current market price and thus provide an immediate profit for the employee.

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The blue line shows the number of shares which would be outstanding if all in-the-money options and warrants were exercised at the given share price.

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That's because options are taxed as earnings when they're exercised, based on the difference between the exercise price and the value of the stock.

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In the case of the oil company, for instance, the cost of land corresponds to the premium (or down-payment) on a call option, and the extra investment needed to start production to its strike price (at which the option is exercised).

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Plus, many of these options will probably never be exercised due to Cisco's boom-time share price.

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Stock options allow someone to buy stock at a fixed price, which, in the case of Cheney, can be below what the trading price is at the time the option is exercised.

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Per the contract, Saban exercised his right to sell in December 2000, at a price to be worked out between investment bankers from both sides.

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