Employee stock options
Call options are often granted to employees of a company as part of their compensation package. Employee stock options act as incentives for employees to create value for the company in order to benefit from capital appreciation of the company's stock value.
There are 2 main types of employee stock options: Incentive stock options (ISOs) and Nonqualified stock options (NSOs).
Incentive stock options or ISOs: Employee stock options that allow the employee to defer paying a tax on the unrealized profits until the shares bought with the employee stock options are sold. The company issuing Incentive Stock Options (ISOs) do not receive a tax deduction.
Nonqualified stock options or NSOs: Employee stock options that requires the employee to pay a tax on the unrealized profits in the shares bought with the employee stock options. The company issuing Nonqualified Stock Options (NSOs) recieves a tax deduction on those unrealized profits.