The bargain element of an option is the difference between the Strike Price and the market price per share at the time of exercise. As a company grows and becomes more valuable, your bargain element grows as well.
What is the bargain element of an option?
The difference between the Strike Price and the market price per share at the time of exercise. As a company grows and becomes more valuable, your bargain element grows as well. Alternatively, if your companie decreases in value, the bargain element will corresponding shrink as well.
How does the bargain element of an option change?
The bargain element fluctuates contingent on the value of your shares. As the value of the shares increase above the strike price, the value of the bargain element also increases. When the value of the shares decreases, the bargaining element does the same.
Can you get taxed on the bargain element?
In the US, you do not pay ordinary income tax on the bargain element until a taxable event has occurred, which is when there is a sale of the security. However, the bargain element is included in AMT calculations.
