The Ultimate Stock Options Quiz

Staff

Image: refer to hsw

About This Quiz

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.

Why would a stock option be mentioned in a job advertisement?

A company stock option is an employee benefit.

What is a stock option?

A stock option is an opportunity to buy a set amount of stock at a certain price and time period.

Why would an employee want stock options?

In addition to their regular salary, stock options give employees the opportunity for future cash proceeds or stock.

What is a strike price?

The strike price is usually the market price of the stock at the time the option is offered to the employee.

How long do you hold a stock option?

Options have a start and expiration date set by the employer.

What is a vesting period?

The time period before an employee can exercise an option is called the vesting period.

What happens if you leave a company before all of your options have vested?

If you leave the company, you will lose any future options.

If you have the offer of a higher salary or stock options from a company with an uncertain future, what is the best choice?

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.

Who offers stock options?

Publicly and privately held companies may offer stock options.

Who is offered stock options?

Stock options are not just for company executives anymore. All levels of employees are being offered stock options.

Why would a start-up company offer 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.

What must happen for stock options to be profitable?

The company stock must trade above the strike price.

What is the grant price?

The grant price is the same as the strike price. Both are the price the company sets for the stock option.

How do employees cash out their stock options?

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.

May the employee hold onto the stocks converted from the options?

The employee is not required to immediately sell the stock.

Do stock options guarantee a profit for the employee?

Stock options may be risky and do not guarantee a profit.

How do stock options allow an employee to share in a company's growth?

As a company grows, their stock price generally will increase and the employee's stock option becomes more profitable.

Does an employee have to exercise an option?

The employee may choose to let the option expire.

How does a privately held company determine a strike price?

The board of directors agrees on a price related to an internal value of the share.

How are vesting periods spread out?

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.

About HowStuffWorks Play

How much do you know about dinosaurs? What is an octane rating? And how do you use a proper noun? Lucky for you, HowStuffWorks Play is here to help. Our award-winning website offers reliable, easy-to-understand explanations about how the world works. From fun quizzes that bring joy to your day, to compelling photography and fascinating lists, HowStuffWorks Play offers something for everyone. Sometimes we explain how stuff works, other times, we ask you, but we’re always exploring in the name of fun! Because learning is fun, so stick with us!

Explore More Quizzes