Can someone explain Backdated Stock Options to me?

[aphex]

?

 

[olds]

I am bored.

 

[everman]

Issue call options to ceo when price is $10 per share, he's restricted to exercising them at least 2 yrs from now. The stock price was $5 3 months ago. This makes the ceo want to increase shareholder value so he can cash out for a lot of money later.

2 yrs later the stock price is $12 per share, so he gets $200 per contract if he exercises them...but wait. He back dates the time they were issued to when the stock price was only $5, now he makes $700 per contract. If he had a few thousand contracts then we're talking big bucks.