Spring-Loaded Option Grants: How to Read the SEC’s Item 402(x) Table

On February 6, 2025, Union Pacific’s six named executive officers received stock options at an exercise price of $243.51, and every one of them shows up in a table the SEC created for spring-loaded option grants: options awarded close to the release of material nonpublic information. The railroad’s own explanation is mundane (a fixed February schedule), and the price change in the table is 0.3%. The table exists because the SEC decided a reader should be able to check, and this post shows how to do that without drawing conclusions the data cannot support.

If you already read Form 4, you know option grants appear there as routine compensation. What Item 402(x) adds is context: how close each grant sat to a filing that could move the stock, and what the stock did next.

What Spring-Loaded Option Grants and Bullet-Dodging Actually Mean

The SEC’s 2022 adopting release defines the first practice as timing option grants “to occur immediately before the release of positive material nonpublic information,” which can benefit executives with an option award that will rise in value. It describes the second, citing attorney Allan Horwich, as a board delaying a planned grant until after adverse news is released, so the exercise price is set at the lower, post-news price.

A Proskauer illustration makes it concrete. Options granted at $10 that close at $15 after a good earnings release are already $5 in the money. For bullet-dodging, a grant planned at $15 is held until after a bad release, when the stock trades at $10, avoiding options that would each have started $5 out of the money. Neither is the same as backdating, which means writing an earlier date on the paperwork. Here the dates are real; the timing around the news is what is in question.

Why 2002 Mattered: From Backdating to the Two-Day Form 4 Clock

Before August 29, 2002, executives could report option grants long after the fact, which made backdating possible. That date is when the SEC requirement to report option grants within two business days took effect. In their Journal of Financial Economics paper, Randall Heron and Erik Lie found that the old pattern (abnormally negative returns before grants and abnormally positive returns after) was “much weaker” after that date, and for grants reported within one day it had “completely vanished.” They read this as evidence that most of the pattern came from backdating.

A fast Form 4 cannot fix the other problem. If the grant date is real and filed in two days, timing the grant around when news comes out is still possible, and nothing in a Form 4 reveals the news calendar. That is the gap Item 402(x) tries to fill. (Our transaction code guide explains why a code A grant row looks routine on its own.)

What the Research Shows (and What It Cannot Prove)

The Heron-Lie paper summarizes the earlier work. David Yermack found average abnormal returns above 2% over the 50 trading days after 620 CEO option grants from 1992 to 1994. Aboody and Kasznik studied 2,039 scheduled CEO grants from 1992 to 1996 and found an average abnormal return of almost 2%, which they read as executives timing information releases around scheduled grants. Erik Lie’s sample of 5,977 CEO grants from 1992 through 2002 showed a pattern that intensified over time.

Bebchuk, Grinstein and Peyer, in “Lucky CEOs,” defined “lucky grants” as those priced at the lowest price of the month. They estimated that about 1,150 grants in 1996–2005 resulted from manipulation, with 12% of firms giving at least one, and that lucky grants were likelier when the board lacked a majority of independent directors or the CEO had longer tenure.

The SEC’s Answer: Item 402(x) and the Four-Day, One-Day Window

On December 14, 2022, the SEC adopteda package that requires issuers to disclose their “policies and practices around the timing of options grants” and to report awards in a new table covering a window that begins four business days before certain filings and ends one business day after.

The final rule is narrower than the proposal. The SEC dropped a proposed 14-day window because it “may result in disclosure of many routine awards that are less likely to have been affected by material nonpublic information.” The triggers are a 10-Q or 10-K, or an 8-K that discloses material nonpublic information. Compliance began with the first filing covering a full fiscal period starting on or after April 1, 2023 (October 1, 2023 for smaller reporting companies), per the Proskauer summary, so for calendar-year companies the first disclosures came in the 2025 proxy season.

Law-firm summaries from Troutman and Holland & Knight split the rule in two:

“Option” here includes stock appreciation rights and similar instruments with option-like features, per the SEC’s adopting release. The table is framed around those instruments, so awards that are not option-like, such as restricted stock units, fall outside it, though companies that grant only RSUs may still describe their timing practices in the narrative.

How to Read a Real Item 402(x) Table: Union Pacific and Sphere Entertainment

The columns are the same in every filing: grant date, number of securities, exercise price, grant-date fair value, and a percentage change in the closing price between the trading day before the news and the trading day after. Here are two of them.

Union Pacific. The proxy says option grants to NEOs are made annually at the February meeting of its compensation committee on a long-standing, predetermined schedule. It files its 10-K after board approval at that meeting, and its fourth-quarter earnings release comes in late January. The footnote uses the close on February 6, 2025, the trading day before the 10-K, and the close on February 10, the trading day after. Six grants in one table with a 0.3% move reflects a scheduled event landing next to a routine filing.

Sphere Entertainment.The 9.7% figure is much larger, but the proxy explains that Sphere announced fiscal second-quarter results and filed its 10-Q on February 5, 2024, and that Koester’s premium-priced options were granted on her start date under her employment agreement. The exercise prices of $42.23 to $50.67 sit above the $35.41 close, so the options start out of the money by design. A big percentage change next to a grant tells you the stock moved; the narrative tells you why the grant date was fixed.

What Most Companies Say in the Narrative Section

Most companies had no table to file. Morgan Lewis noted that “most companies did not need to include the tabular disclosure,” and that narratives varied: some describe a formal policy, others describe consistent practice and grant cadence, and non-option issuers say they have no policy.

Troutman’s review of five early filers (Apple, Deere, Estée Lauder, Intuit and Visa) found that only Visa disclosed a formal policy on equity award timing. Apple generally grants awards on the first day of its fiscal year; Deere reported a 0.91% average stock price change around its 10-K filing and says it has not timed disclosure to affect executive pay. A DragonGC list of 40 early filers shows the range: TE Connectivity grants during its first-fiscal-quarter trading window, Post Holdings has not granted options in over five years, and AECOM, BrightView and Tetra Tech state they have no formal policy. The narrative must be XBRL-tagged, which makes it machine-searchable.

Pairing Item 402(x) with Form 4: Where the Grant Shows Up

Option grants are reported on Form 4 within two business days. Per the SEC’s Form 4 instructions, derivative securities such as options go in Table II, and code A means a grant or award under Rule 16b-3(d). So a reader can match three things: the Form 4 grant date and exercise price, the 402(x) table row, and the company’s news calendar (earnings dates, 8-Ks). In the Union Pacific case, the $243.51 exercise price matches the February 6 close used in the table’s footnote. For how companies set their own trading windows, see our guides to blackout periods and Exhibit 19 insider trading policies. A similar timing question arises for gifts, covered in our Code G explainer.

SAB 120 and the Accounting Side of Spring-Loaded Awards

The SEC staff addressed the same behavior from the accounting side in Staff Accounting Bulletin No. 120, dated November 24, 2021. It says a company granting awards while holding positive material nonpublic information should consider whether adjustments to the current price of the underlying share or the expected volatility are appropriate when valuing the award, and that “non-routine spring-loaded grants merit particular scrutiny” from those overseeing compensation and financial reporting. In plain terms, a grant made with good news in hand may be worth more than a simple pricing model on the public stock price suggests.

Limits and a Reader’s Checklist

This is a way to read a disclosure, not a signal.

• 1
  Scheduled or ad hoc? A fixed annual date, as at Union Pacific, explains a window hit far better than a one-off grant on a random Tuesday.
• 2
  Which filing was the trigger? A routine 10-K differs from an 8-K that disclosed a surprise.
• 3
  What does the percentage column say, and what explains the grant? Read the footnotes and the compensation discussion before the number.
• 4
  New hire? Grants on a start date, as with Sphere, can fall in a window for reasons unrelated to timing. Troutman notes such grants can make stated practices hard to square with reality.

The limits are real. The table covers only named executive officers, only options and SARs, and only the window around specific filings. A company with no table may have made no grants near news, or none at all. A “we do not time grants” sentence is a statement of practice, not an audit. Shareholders have brought claims over alleged spring-loaded and bullet-dodged awards, including breach of loyalty and unjust enrichment, but those are allegations, and a window hit is not a finding.