Off topic – stock options

[USMCBunny]

Just in case anybody has the time to spell something out for me, I know it’s off topic, but there are very smart people who post here…

My wife is moving up in the business world, and has been “granted” stock options.

“You have been granted 1100 options. The stock option grant date is 21 Sep, 2007 with an option price of $26.35″… The letter says to keep this “confidential”, thus I have not named the company yet.

Any of you really smart types that could dumb this down for me… ie: tell me how to capitalize on this, it would be very much appreciated.

Isn’t this just an opportunity to invest into one’s own company?

Thanks

[Raybyrnes]

You are granted options so they are yours. You do not have to buy them. In this case they are letting you know your option strike price 26.35. If the price of the stock goes to let’s say 27.35 and you have 1100 option then the value of the option would be $1100 dollars. If on the other hand the stock price is below the 26.35 then they are worthless for now.

For you to see if there is anything to capitalize on you need to find out what the current market price is for the securities. From there you can begin to make some decisions.

How do stock options work?

Job ads in the classifieds mention stock options more and more frequently. Companies are offering this benefit not just to top-paid executives but also to rank-and-file employees. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The answers to these questions will give you a much better idea about this increasingly popular movement.
Let’s start with a simple definition of stock options:

Stock options from your employer give you the right to buy a specific number of shares of your company’s stock during a time and at a price that your employer specifies.
Both privately and publicly held companies make options available for several reasons:

They want to attract and keep good workers.
They want their employees to feel like owners or partners in the business.
They want to hire skilled workers by offering compensation that goes beyond a salary. This is especially true in start-up companies that want to hold on to as much cash as possible.
The price the company sets on the stock (called the grant or strike price) is discounted and is usually the market price of the stock at the time the employee is given the options. Since those options cannot be exercised for some time, the hope is that the price of the shares will go up so that selling them later at a higher market price will yield a profit. You can see, then, that unless the company goes out of business or doesn’t perform well, offering stock options is a good way to motivate workers to accept jobs and stay on. Those stock options promise potential cash or stock in addition to salary.
Let’s look at a real world example to help you understand how this might work. Say Company X gives or grants its employees options to buy 100 shares of stock at $5 a share. The employees can exercise the options starting Aug. 1, 2001. On Aug. 1, 2001, the stock is at $10. Here are the choices for the employee:

The first thing an employee can do is convert the options to stock, buy it at $5 a share, then turn around and sell all the stock after a waiting period specified in the options’ contract. If an employee sells those 100 shares, that’s a gain of $5 a share, or $500 in profit.
Another thing an employee can do is sell some of the stock after the waiting period and keep some to sell later. Again, the employee has to buy the stock at $5 a share first.
The last choice is to change all the options to stock, buy it at the discounted price and keep it with the idea of selling it later, maybe when each share is worth $15. (Of course, there’s no way to tell if that will ever happen.)
Whatever choice an employee makes, though, the options have to be converted to stock, which brings us to another aspect of stock options: the vesting period. In the example with Company X, employees could exercise their options and buy all 100 shares at once if they wanted to. Usually, though, a company will spread out the vesting period, maybe over three or five or 10 years, and let employees buy so many shares according to a schedule. Here’s how that might work:
You get options on 100 shares of stock in your company.
The vesting schedule for your options is spread out over four years, with one-fourth vested the first year, one-fourth vested the second, one-fourth vested the third, and one-fourth vested the fourth year.
This means you can buy 25 shares at the grant or strike price the first year, then 25 shares each year after until you’re fully vested in the fourth year.
Remember that each year you can buy 25 shares of stock at a discount, then keep it or sell it at the current market value (current stock price). And each year you’re going to hope the stock price continues to rise.
Another thing to know about options is that they always have an expiration date: You can exercise your options starting on a certain date and ending on a certain date. If you don’t exercise the options within that period, you lose them. And if you are leaving a company, you can only exercise your vested options; you will lose any future vesting.

One question you might have is: How does a privately held company establish a market and grant (strike) price on each share of its stock? This might be especially interesting to know if you are or might be working for a small, privately held company that offers stock options. What the company does is to fix a price that is related to the internal value of the share, and this is established by the company’s board of directors through a vote.

Overall, you can see that stock options do have risk, and they are not always better than cash compensation if the company is not successful, but they are becoming a built-in feature in many industries.

Here are some interesting links:

Employee Stock Options Fact Sheet
The Investment FAQ
How Stocks and the Stock Market Work
Stock Links

[Raybyrnes]

You are granted options so they are yours. You do not have to buy them. In this case they are letting you know your option strike price 26.35. If the price of the stock goes to let’s say 27.35 and you have 1100 option then the value of the option would be $1100 dollars. If on the other hand the stock price is below the 26.35 then they are worthless for now.

For you to see if there is anything to capitalize on you need to find out what the current market price is for the securities. From there you can begin to make some decisions.

How do stock options work?

Job ads in the classifieds mention stock options more and more frequently. Companies are offering this benefit not just to top-paid executives but also to rank-and-file employees. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The answers to these questions will give you a much better idea about this increasingly popular movement.
Let’s start with a simple definition of stock options:

Stock options from your employer give you the right to buy a specific number of shares of your company’s stock during a time and at a price that your employer specifies.
Both privately and publicly held companies make options available for several reasons:

They want to attract and keep good workers.
They want their employees to feel like owners or partners in the business.
They want to hire skilled workers by offering compensation that goes beyond a salary. This is especially true in start-up companies that want to hold on to as much cash as possible.
The price the company sets on the stock (called the grant or strike price) is discounted and is usually the market price of the stock at the time the employee is given the options. Since those options cannot be exercised for some time, the hope is that the price of the shares will go up so that selling them later at a higher market price will yield a profit. You can see, then, that unless the company goes out of business or doesn’t perform well, offering stock options is a good way to motivate workers to accept jobs and stay on. Those stock options promise potential cash or stock in addition to salary.
Let’s look at a real world example to help you understand how this might work. Say Company X gives or grants its employees options to buy 100 shares of stock at $5 a share. The employees can exercise the options starting Aug. 1, 2001. On Aug. 1, 2001, the stock is at $10. Here are the choices for the employee:

The first thing an employee can do is convert the options to stock, buy it at $5 a share, then turn around and sell all the stock after a waiting period specified in the options’ contract. If an employee sells those 100 shares, that’s a gain of $5 a share, or $500 in profit.
Another thing an employee can do is sell some of the stock after the waiting period and keep some to sell later. Again, the employee has to buy the stock at $5 a share first.
The last choice is to change all the options to stock, buy it at the discounted price and keep it with the idea of selling it later, maybe when each share is worth $15. (Of course, there’s no way to tell if that will ever happen.)
Whatever choice an employee makes, though, the options have to be converted to stock, which brings us to another aspect of stock options: the vesting period. In the example with Company X, employees could exercise their options and buy all 100 shares at once if they wanted to. Usually, though, a company will spread out the vesting period, maybe over three or five or 10 years, and let employees buy so many shares according to a schedule. Here’s how that might work:
You get options on 100 shares of stock in your company.
The vesting schedule for your options is spread out over four years, with one-fourth vested the first year, one-fourth vested the second, one-fourth vested the third, and one-fourth vested the fourth year.
This means you can buy 25 shares at the grant or strike price the first year, then 25 shares each year after until you’re fully vested in the fourth year.
Remember that each year you can buy 25 shares of stock at a discount, then keep it or sell it at the current market value (current stock price). And each year you’re going to hope the stock price continues to rise.
Another thing to know about options is that they always have an expiration date: You can exercise your options starting on a certain date and ending on a certain date. If you don’t exercise the options within that period, you lose them. And if you are leaving a company, you can only exercise your vested options; you will lose any future vesting.

One question you might have is: How does a privately held company establish a market and grant (strike) price on each share of its stock? This might be especially interesting to know if you are or might be working for a small, privately held company that offers stock options. What the company does is to fix a price that is related to the internal value of the share, and this is established by the company’s board of directors through a vote.

Overall, you can see that stock options do have risk, and they are not always better than cash compensation if the company is not successful, but they are becoming a built-in feature in many industries.

Here are some interesting links:

Employee Stock Options Fact Sheet
The Investment FAQ
How Stocks and the Stock Market Work
Stock Links

[Raybyrnes]

You are granted options so they are yours. You do not have to buy them. In this case they are letting you know your option strike price 26.35. If the price of the stock goes to let’s say 27.35 and you have 1100 option then the value of the option would be $1100 dollars. If on the other hand the stock price is below the 26.35 then they are worthless for now.

For you to see if there is anything to capitalize on you need to find out what the current market price is for the securities. From there you can begin to make some decisions.

How do stock options work?

Job ads in the classifieds mention stock options more and more frequently. Companies are offering this benefit not just to top-paid executives but also to rank-and-file employees. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The answers to these questions will give you a much better idea about this increasingly popular movement.
Let’s start with a simple definition of stock options:

Stock options from your employer give you the right to buy a specific number of shares of your company’s stock during a time and at a price that your employer specifies.
Both privately and publicly held companies make options available for several reasons:

They want to attract and keep good workers.
They want their employees to feel like owners or partners in the business.
They want to hire skilled workers by offering compensation that goes beyond a salary. This is especially true in start-up companies that want to hold on to as much cash as possible.
The price the company sets on the stock (called the grant or strike price) is discounted and is usually the market price of the stock at the time the employee is given the options. Since those options cannot be exercised for some time, the hope is that the price of the shares will go up so that selling them later at a higher market price will yield a profit. You can see, then, that unless the company goes out of business or doesn’t perform well, offering stock options is a good way to motivate workers to accept jobs and stay on. Those stock options promise potential cash or stock in addition to salary.
Let’s look at a real world example to help you understand how this might work. Say Company X gives or grants its employees options to buy 100 shares of stock at $5 a share. The employees can exercise the options starting Aug. 1, 2001. On Aug. 1, 2001, the stock is at $10. Here are the choices for the employee:

The first thing an employee can do is convert the options to stock, buy it at $5 a share, then turn around and sell all the stock after a waiting period specified in the options’ contract. If an employee sells those 100 shares, that’s a gain of $5 a share, or $500 in profit.
Another thing an employee can do is sell some of the stock after the waiting period and keep some to sell later. Again, the employee has to buy the stock at $5 a share first.
The last choice is to change all the options to stock, buy it at the discounted price and keep it with the idea of selling it later, maybe when each share is worth $15. (Of course, there’s no way to tell if that will ever happen.)
Whatever choice an employee makes, though, the options have to be converted to stock, which brings us to another aspect of stock options: the vesting period. In the example with Company X, employees could exercise their options and buy all 100 shares at once if they wanted to. Usually, though, a company will spread out the vesting period, maybe over three or five or 10 years, and let employees buy so many shares according to a schedule. Here’s how that might work:
You get options on 100 shares of stock in your company.
The vesting schedule for your options is spread out over four years, with one-fourth vested the first year, one-fourth vested the second, one-fourth vested the third, and one-fourth vested the fourth year.
This means you can buy 25 shares at the grant or strike price the first year, then 25 shares each year after until you’re fully vested in the fourth year.
Remember that each year you can buy 25 shares of stock at a discount, then keep it or sell it at the current market value (current stock price). And each year you’re going to hope the stock price continues to rise.
Another thing to know about options is that they always have an expiration date: You can exercise your options starting on a certain date and ending on a certain date. If you don’t exercise the options within that period, you lose them. And if you are leaving a company, you can only exercise your vested options; you will lose any future vesting.

One question you might have is: How does a privately held company establish a market and grant (strike) price on each share of its stock? This might be especially interesting to know if you are or might be working for a small, privately held company that offers stock options. What the company does is to fix a price that is related to the internal value of the share, and this is established by the company’s board of directors through a vote.

Overall, you can see that stock options do have risk, and they are not always better than cash compensation if the company is not successful, but they are becoming a built-in feature in many industries.

Here are some interesting links:

Employee Stock Options Fact Sheet
The Investment FAQ
How Stocks and the Stock Market Work
Stock Links

[Raybyrnes]

You are granted options so they are yours. You do not have to buy them. In this case they are letting you know your option strike price 26.35. If the price of the stock goes to let’s say 27.35 and you have 1100 option then the value of the option would be $1100 dollars. If on the other hand the stock price is below the 26.35 then they are worthless for now.

For you to see if there is anything to capitalize on you need to find out what the current market price is for the securities. From there you can begin to make some decisions.

How do stock options work?

Job ads in the classifieds mention stock options more and more frequently. Companies are offering this benefit not just to top-paid executives but also to rank-and-file employees. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The answers to these questions will give you a much better idea about this increasingly popular movement.
Let’s start with a simple definition of stock options:

Stock options from your employer give you the right to buy a specific number of shares of your company’s stock during a time and at a price that your employer specifies.
Both privately and publicly held companies make options available for several reasons:

They want to attract and keep good workers.
They want their employees to feel like owners or partners in the business.
They want to hire skilled workers by offering compensation that goes beyond a salary. This is especially true in start-up companies that want to hold on to as much cash as possible.
The price the company sets on the stock (called the grant or strike price) is discounted and is usually the market price of the stock at the time the employee is given the options. Since those options cannot be exercised for some time, the hope is that the price of the shares will go up so that selling them later at a higher market price will yield a profit. You can see, then, that unless the company goes out of business or doesn’t perform well, offering stock options is a good way to motivate workers to accept jobs and stay on. Those stock options promise potential cash or stock in addition to salary.
Let’s look at a real world example to help you understand how this might work. Say Company X gives or grants its employees options to buy 100 shares of stock at $5 a share. The employees can exercise the options starting Aug. 1, 2001. On Aug. 1, 2001, the stock is at $10. Here are the choices for the employee:

The first thing an employee can do is convert the options to stock, buy it at $5 a share, then turn around and sell all the stock after a waiting period specified in the options’ contract. If an employee sells those 100 shares, that’s a gain of $5 a share, or $500 in profit.
Another thing an employee can do is sell some of the stock after the waiting period and keep some to sell later. Again, the employee has to buy the stock at $5 a share first.
The last choice is to change all the options to stock, buy it at the discounted price and keep it with the idea of selling it later, maybe when each share is worth $15. (Of course, there’s no way to tell if that will ever happen.)
Whatever choice an employee makes, though, the options have to be converted to stock, which brings us to another aspect of stock options: the vesting period. In the example with Company X, employees could exercise their options and buy all 100 shares at once if they wanted to. Usually, though, a company will spread out the vesting period, maybe over three or five or 10 years, and let employees buy so many shares according to a schedule. Here’s how that might work:
You get options on 100 shares of stock in your company.
The vesting schedule for your options is spread out over four years, with one-fourth vested the first year, one-fourth vested the second, one-fourth vested the third, and one-fourth vested the fourth year.
This means you can buy 25 shares at the grant or strike price the first year, then 25 shares each year after until you’re fully vested in the fourth year.
Remember that each year you can buy 25 shares of stock at a discount, then keep it or sell it at the current market value (current stock price). And each year you’re going to hope the stock price continues to rise.
Another thing to know about options is that they always have an expiration date: You can exercise your options starting on a certain date and ending on a certain date. If you don’t exercise the options within that period, you lose them. And if you are leaving a company, you can only exercise your vested options; you will lose any future vesting.

One question you might have is: How does a privately held company establish a market and grant (strike) price on each share of its stock? This might be especially interesting to know if you are or might be working for a small, privately held company that offers stock options. What the company does is to fix a price that is related to the internal value of the share, and this is established by the company’s board of directors through a vote.

Overall, you can see that stock options do have risk, and they are not always better than cash compensation if the company is not successful, but they are becoming a built-in feature in many industries.

Here are some interesting links:

Employee Stock Options Fact Sheet
The Investment FAQ
How Stocks and the Stock Market Work
Stock Links

[USMCBunny]

Thanks Raybyrnes … so this is sort of a no lose deal, if the price of the stock goes up, do we buy the stock at the reduced price and then sell them at the higher price? Seems to easy, though, that presupposes the stock will go up. Guess I should check and see.

Flywestcoast

[USMCBunny]

Thanks Raybyrnes … so this is sort of a no lose deal, if the price of the stock goes up, do we buy the stock at the reduced price and then sell them at the higher price? Seems to easy, though, that presupposes the stock will go up. Guess I should check and see.

Flywestcoast

[USMCBunny]

Thanks Raybyrnes … so this is sort of a no lose deal, if the price of the stock goes up, do we buy the stock at the reduced price and then sell them at the higher price? Seems to easy, though, that presupposes the stock will go up. Guess I should check and see.

Flywestcoast

[USMCBunny]

Thanks Raybyrnes … so this is sort of a no lose deal, if the price of the stock goes up, do we buy the stock at the reduced price and then sell them at the higher price? Seems to easy, though, that presupposes the stock will go up. Guess I should check and see.

Flywestcoast

[Daniel]

There should also be an expiration date (sometime far in the future, not Sep 2007, which is the grant date). Also, it should be clear from the text whether she’s got options for 1,100 shares (that would be 11 standard contracts), or perhaps more.

Whenever she exercises the options, she will get 1,100*(stock price on that date – $26.35), if stock price is above $26.35, or nothing otherwise. She can exercise up to the expiration date. However, there are lots and lots of tax implications on option awards, and it may be very complicated (due to tax issues) to decide what the best course of action is. There may also be strings attached.

PS: yes, this is certainly an opportunity to invest in the company she works for. Whether it’s a good or bad investment, only future will tell.

[Daniel]

There should also be an expiration date (sometime far in the future, not Sep 2007, which is the grant date). Also, it should be clear from the text whether she’s got options for 1,100 shares (that would be 11 standard contracts), or perhaps more.

Whenever she exercises the options, she will get 1,100*(stock price on that date – $26.35), if stock price is above $26.35, or nothing otherwise. She can exercise up to the expiration date. However, there are lots and lots of tax implications on option awards, and it may be very complicated (due to tax issues) to decide what the best course of action is. There may also be strings attached.

PS: yes, this is certainly an opportunity to invest in the company she works for. Whether it’s a good or bad investment, only future will tell.

[Daniel]

There should also be an expiration date (sometime far in the future, not Sep 2007, which is the grant date). Also, it should be clear from the text whether she’s got options for 1,100 shares (that would be 11 standard contracts), or perhaps more.

Whenever she exercises the options, she will get 1,100*(stock price on that date – $26.35), if stock price is above $26.35, or nothing otherwise. She can exercise up to the expiration date. However, there are lots and lots of tax implications on option awards, and it may be very complicated (due to tax issues) to decide what the best course of action is. There may also be strings attached.

PS: yes, this is certainly an opportunity to invest in the company she works for. Whether it’s a good or bad investment, only future will tell.

[Daniel]

There should also be an expiration date (sometime far in the future, not Sep 2007, which is the grant date). Also, it should be clear from the text whether she’s got options for 1,100 shares (that would be 11 standard contracts), or perhaps more.

Whenever she exercises the options, she will get 1,100*(stock price on that date – $26.35), if stock price is above $26.35, or nothing otherwise. She can exercise up to the expiration date. However, there are lots and lots of tax implications on option awards, and it may be very complicated (due to tax issues) to decide what the best course of action is. There may also be strings attached.

PS: yes, this is certainly an opportunity to invest in the company she works for. Whether it’s a good or bad investment, only future will tell.

[Daniel]

Sorry, I see Ray pretty much covered it all. Ray, you type damn fast 🙂

[Daniel]

Sorry, I see Ray pretty much covered it all. Ray, you type damn fast 🙂

[Author]

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