Stock Options and Diluted EPS

Quick technical question. How do stock options affect diluted EPS? We use the Treasury

Stock Method to calculate dilution from options and warrants. Assume the stock

price is $50. There are 1,000 in‑the‑money options with a $30 strike price.

First, assume all options are exercised. That creates 1,000 new shares and the

company receives $30,000 in cash. Next, use that cash to buy back shares

at the current stock price. $30,000 divided by $50 means 600 shares are repurchased.

The net dilution is 1,000 shares issued minus 600 shares repurchased, or 400 net new shares.

That 400 increases diluted shares outstanding and dilutes EPS. This is exactly how interviews expect