Under a Nonqualified Stock Option (NQSO) Plan Which Is Granted

Under a nonqualified stock option (NQSO) plan which is granted to Damon on March 15, 2015, he may purchase 200 shares of stock from his employer at $15 per share. At that date, the option does not have a readily ascertainable fair market value. Eight months later on the date of exercise the fair market value of the stock is $20. On December 1, 2017, Damon sells 100 shares for $24 each. Which of the following would be the result of these transactions on the date of exercise and the date of sale?

A) Ordinary income of $1,000 and a long-term capital gain of $400.
B) Ordinary income of $1,200 and a long-term capital gain of $300.
C) Ordinary income of $2,400 and a long-term capital gain of $0.
D) Ordinary income of $1,000 and a short-term capital gain of $400.
E) None of the above.

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