Underwater
Categories: Derivatives, Investing, Tax
Stock options are only profitable in certain circumstances, mostly depending on the price of the stock.
If a particular option would be worthless if it expired or were executed today, then it would be referred to as "being underwater."
Example
You joined WildInternetCompany.com about 3 months after the very hot IPO. Its stock zoomed to $34 a share after pricing at $12. Your options were granted the day you joined, taking the average close price of the previous month or $34 a share.
Sadly, the new products they launched, well, sucked. The share price has sagged to $24 a share now. You are $10 "underwater" in your options.