What Are Stock Options? All about Stock Options

You might have seen job ads in the classifieds as you were reading your newspaper mention stock options. You might have noticed that as the years pass, stock options are frequently mentioned in newspaper classified ads, in TV, and even in the radio.

Many companies are offering stock options not just to executives but also to common employees. You might ask what a stock option is or why companies offer them. You may even ask if common employees, such as yourself, are guaranteed a profit because you have stock option. The answers to this question will give you a broader view about this increasingly becoming popular stock option.

The simple definition of stock option is:

Stock options from your boss or employer can give you the right to buy a specified number of shares of your company’s stock at a specific time and at a specific price that your boss or employer told you.

There are several reasons why companies offer even their common employee stock options. Here are some of them:

• By offering stock options, a company can attract and keep good employees. By having the benefit of making an extra income for their employees, many of their employees who understands stock options tends to stay and work for them harder.

• Companies offer stock option to their employees to make them feel like a part of the company. Employees tend to feel that they own the business or partners of it.

• Stock options offer compensation that goes beyond salary. It produces additional income and of course, people like to earn more money. This attracts skilled workers to work for their company.

The grant or strike price the company sets on a stock is usually discounted. It is also the market price of the stock at the time the employer gives his or her employee the option.

Usually, these options cannot be exercised right away. You, as an employee, have to wait and hope that the price of the shares will go up. If the prices go up, it will mean higher market price and profit when you sell them.

As you can see, a very good motivator for employees invests in stock options. This is because if you purchased a stock option, you automatically want the business to improve to enable it to produce a higher market value on their stocks. An employee who has stock options of their company tends to work harder and becomes loyal to the company.

You should remember that stock options always have an expiration date. You can exercise your options on a specific date and at the expiration date. You might ask what if you do not exercise your stock options on or before the expiration date.

It would mean you would lose your shares. If you also leave the company, you can only exercise your vested options but you will lose any vesting in the future.

As you can see that stock options also have its risk, if you think that the company is not performing well, do not invest on their stock options. It is wise that you know a little bit in option markets.

Try to find out if the company you are working for will last for several years, this is very hard to predict. A change in management can either mean losing the company or improvement in the company.