Treasury stock method

The standard way to count option dilution. It assumes the proceeds from exercising options are used to buy back shares at the market price, so only the net new shares dilute.

With 3 crore options at a ₹400 exercise price and a market price of ₹1,200, the proceeds of ₹1,200 crore repurchase 1 crore shares, so net dilution is 2 crore rather than 3.

The method is why diluted share counts rise as the share price rises: the higher the price, the fewer shares the exercise proceeds buy back, and the greater the net dilution.

Options far out of the money add nothing under this method.