Question

Does a corporation on whose stock an option is written receive any funds from the transaction?

Answer 1

It depends,

If the option is written by an external organisation then the corporation doesn't receive any funds.

However,

If the company has written options e.g. ESOPs, Employee Stock Options then the corporation receives the funds. However, it should be noted that no premium is paid to the corporation in this transaction. They simply receive the strike price amount which is usually used to repurchase a part of the stock from the open market.

Eg.

if the strike price is =100

Market price= 120

Quantity=100

Fund Received by Corporation = 100*100=10,000

Stocks repurchased = 10,000/120 = 83.33

Stocks Issued = 17.67.

This is however only possible in the case of public companies. In the case of private companies, all the stocks are issued.

Eg.

if the strike price is =100

Market price (last transaction)= 120

Quantity=100

Fund Received by Corporation = 100*100=10,000

Stocks Issued = 100

Cash Balance Change = 10,000

Therefore,

In case options are issued by private companies then Employee Stock Options generate funds for the corporation in the transaction.