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Finance
Underwater Option
A stock option whose exercise price is higher than the current market price of the stock.
Underwater options are common after stock price drops. Companies sometimes reprice them or issue new grants to keep employees motivated. They create accounting and tax complications for both the company and the employee.
It's a lottery ticket where the winning numbers are higher than what actually came up.
Real world: An employee was granted options at £50 per share. If the stock price falls to £35, the options are underwater. The employee won't exercise them because it's cheaper to buy shares on the open market.
💡 Underwater options feel worthless to employees even though they still have potential if the stock recovers.