Stock options are a popular employee benefit, and have made millions for some lucky workers. Understanding what stock options can do for you or what this compensation benefit can do for your company may help you make better employment decisions. Take this quiz to see how much you know about stock options.
A company stock option is an employee benefit.
A stock option is an opportunity to buy a set amount of stock at a certain price and time period.
In addition to their regular salary, stock options give employees the opportunity for future cash proceeds or stock.
The strike price is usually the market price of the stock at the time the option is offered to the employee.
Options have a start and expiration date set by the employer.
The time period before an employee can exercise an option is called the vesting period.
If you leave the company, you will lose any future options.
For a company with an uncertain future, a salary offer is for a guaranteed amount but options are not. You may want to take the salary offer, if you have the choice and are uncertain of the company's future.
Publicly and privately held companies may offer stock options.
Stock options are not just for company executives anymore. All levels of employees are being offered stock options.
Many start-up companies want to conserve cash, so they offer generous stock options in lieu of higher salaries. Many people have become rich from start-up companies like Google.
The company stock must trade above the strike price.
The grant price is the same as the strike price. Both are the price the company sets for the stock option.
The employees must first convert the option to stock, and then wait a specified period of time before selling and cashing in on the profit.
The employee is not required to immediately sell the stock.
Stock options may be risky and do not guarantee a profit.
As a company grows, their stock price generally will increase and the employee's stock option becomes more profitable.
The employee may choose to let the option expire.
The board of directors agrees on a price related to an internal value of the share.
Sometimes companies will spread out the time an employee may exercise options over several years. A vesting schedule will be set up for the employee to purchase the stock at the strike price.