A special benefit that some companies offer to their employees to purchase stock at a fixed price. Companies usually award incentive stock options as a bonus for performance, or as an incentive to get you to work harder. This illustration, from the 1995-1996 edition of The Price Waterhouse Personal Tax Advisor, shows how a typical ISO might work:""As a result of your outstanding performance last year, your boss gave you a bonus -- an option on 2,000 shares of company stock. The option price is $12 a share. The option price is the amount you pay for the stock when you exercise your option and in most cases is the fair market value of the stock on the date your option was granted.""Now, a year later, the market price of the stock has soared to $20 a share, and you decide to exercise the option. When you do, you pay $24,000 -- that is, $12 times 2,000 shares -- for stock that is currently worth $40,000.""