Scribd
Upload
30 views1 page

Spring Loading

Spring loading is an option granting practice where options are given before a positive news event is announced, allowing the option holder to benefit from the stock price increase immediately. It is controversial because option strike prices should reflect the stock price on the grant date, so instant profits defeat the purpose of linking executive compensation to shareholder value creation. However, others argue spring loading effects are minimal since options typically vest over time.

Uploaded by

Bhavesh Bajaj
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
30 views1 page

Spring Loading

Spring loading is an option granting practice where options are given before a positive news event is announced, allowing the option holder to benefit from the stock price increase immediately. It is controversial because option strike prices should reflect the stock price on the grant date, so instant profits defeat the purpose of linking executive compensation to shareholder value creation. However, others argue spring loading effects are minimal since options typically vest over time.

Uploaded by

Bhavesh Bajaj
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 1

Definition of 'Spring Loading'

An option-granting practice in which options are granted at a time that precedes a positive news event. Spring loading relies on the fact that positive news typically causes the underlying company's stock to surge in value. Timing an option grant to precede the public news release

provides the option holder with an almost instant profit.


Investopedia explains 'Spring Loading'

Spring-loading options is often a controversial practice. Because option strike prices tend to be derived from the grant day's stock price, on the day of granting the option should be "at the money". Theoretically, executives should benefit from options-based compensation only if their performance has increased shareholder value. Therefore, critics of spring loaded options state that allowing the option holder to gain instant profit defeats the purpose of option-based compensation. However, others claim that the effects of spring loading are minimal, as most option grants have a vesting period, which prevents the holder from realizing his or her position for a period of time. In this case, the option might be out of the money long before the investor can exercise it.
Read more: http://www.investopedia.com/terms/s/spring_loading.asp#ixzz25KT7SvjM

You might also like