On February 1 of year 0, John received a nonqualified stock option to purchase 100 shares of his employers stock for $10 per share. At the time John received the option, it was selling for $5 per share on an established exchange. On September 1 of year 1, John exercised the options when the stock was selling for $19 per share. On December 1 of year 2, John sold all of the shares for $30 per share. What is the amount and character of income that John must report in year 0?

$0

$500, ordinary

$500, capital

$1,000, ordinary