Executive stock options provide stock purchase rights as compensation for corporate employees. For services rendered, the manager or the employee has the right to buy a specific number of shares for a set price during a given period. Unlike warrants and publicly traded options, executive stock options cannot be traded. The option’s owner has only two choices: exercise the option or let it expire. Like a warrant, should the owner decide to exercise the option, the corporation receives money and issues new shares. The use of executive stock options for management compensation raises an interesting agency question. The firm’s managers may make investment and financing decisions that increase the firm’s risk in order to increase the value of their stock options. Such an action could have a detrimental effect on the bondholders and other creditors of the firm.