How do stock options work?
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Anonymous
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I need a primer on how stock options as compensation. If you receive a portion of your salary as stock options, how do value them? Obviously I am pretty clueless here -- any insights would be appreciated.
Thanks |
Anonymous
Sorry for the typos -- that should be how do they work? |
Anonymous
| For my options, I get offered a chunk (1,000 or more) at the price the stock is trading at the day I earn the options, but they are not exerciseable until the future (usually 1-3 years out, but expire at 10 years). If the stock was 50 when you were given the option and 60 when you go to exercise in a cashless exercise, then you sell the stock to a broker and walk away with just under $10 per share and owe income tax. If you have the funds to buy and hold the shares from the company at the option price, then you can buy the shares at a future date for a lower price and then your ultimate profit is taxed at capital gains. |
Anonymous
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^^^^
This is it. Whether or not you get paid will depend on how well the company does and how well the stock market does (these two are not related, unless you're in finance) in the future. Options can be a very nice perk but beware letting them be too large a portion of your compensation, unless you really know what you're doing. |
Anonymous
| of course if you are a high level executive, then the board picks a day in the preceding year(s) when the stock was at its lowest and offers you the opportunity to buy a few million shares at that price (or at a discount from that price), so you are guaranteed to take home another $10-20 million in "incentive pay". |
Anonymous
Right, but a high level executive would not be asking this question on DCUM. |
Anonymous
| OP here. Thanks very much for the explanation. Obviously I am not a high-level exec. I was having trouble understanding how much I was to see them as worth at the time I earn them, and it sounds from this as though the answer is they are worth nothing at time 0, with potential to be worth more in the future. |
Anonymous
| Too bad u didn't get grants instead of options. That's REAL money. |