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If you're one of the lucky few employees who receives employee stock options as part of your total compensation package, consider yourself lucky. These options have the potential for becoming very lucrative in a short period of time and they can be a great “bonus” income down the road.
Stock options aren't like a typical bonus you may receive from work. Options give you the right to buy a certain number of shares at a specified price (called the strike price) for a period of time. Exercise that right when the stock price is at a high and you could be sitting on a gold mine. Wait too long and you could see the stock price head back down and lessen the amount of money you could receive. It's a very inexact science.
It all comes down to when is the right time to exercise those stock options. That is really determined almost entirely by the company's prospects and the current value of its stock price.
Options typically carry an exercise period of about 10 years. The last decade notwithstanding, stock prices generally tend to move upward over longer periods of time. If you're just at the beginning of your holding period, it might make sense to hang on to your options longer to give the stock a chance to appreciate further.
As you start approaching the end of the exercise period, it becomes more critical to make a decision to exercise the options as you'll lose out altogether if you don't make it in time. If the stock is at a high point in the last three years of the exercise period, you may benefit from exercising your options and locking in your gain.
Again, it depends largely on your company's prospects. If you work at a company that has slow steady growth, you may be able to hang on and let the stock price slowly rise. If you work at a place like a technology company where the highs are higher and the lows are lower, you may want to consider locking in at a point where the stock price is high regardless of how much time is remaining in the exercise period. The risk of a sharp sudden drop in stock price is significant. Just ask stock option holders at banks.
When in doubt, always consider consulting a tax attorney or accountant. They can steer you in the right direction as well.
What else can I help you with?
What is the purpose of free stock options?
Free stock options are often in the form of employee stock options, where an employee is offered stock in the company as a form of non-monetary compensation.
Where can I learn about employee stock options?
An excellent resource for learning about employee stock options is through The National Center for Employee Ownership at nceo.org. This is a nonprofit organization that provides objective information relating to all aspects of employee stock options.
When is the best time to exercise stock options?
The best time to exercise stock options is when the stock price is higher than the exercise price, allowing you to maximize your profit.
What is the difference between vesting date and exercise date in ES OP?
The vesting schedule determines when the employee gets control over his options. Once vested, the employee still has to exercise the options at the exercise price during the exercise period in order to become the owner of the shares. The vesting schedule, exercise price and the exercise period are all specified in the stock option plan.
What is the definition of the term non-qualified stock options?
Non-qualified stock options (NSO) is a form of employee stock option. In this stock, the employee pays normal income tax on the difference between the grant and the price of the stock.
What is the duration of post-termination exercise periods for employees?
The duration of post-termination exercise periods for employees varies depending on the company's policies and the terms of the employee's stock options or equity grants.
What has the author Judith S Ruud written?
Judith S. Ruud has written: 'Accounting for employee stock options' -- subject(s): Accounting, Employee stock options
What are employee stock options and how do you know if your company offers it?
Employee stock options vary by company. You need to ask your human resources department if this is available to you. This will provide the employee with stock in the company. Later, the employee may sell the stock just as if they purchased it themselves. For further information on your specific situation, contact human resources.
Can you reissue expired employee stock options?
Yes, companies can reissue expired employee stock options, but it typically requires board approval and may be subject to specific regulations or company policies. The reissuance process often involves granting new options with new terms, which could include a different exercise price or expiration date. It's important to consider the potential impact on employee morale and the company's stockholder approval requirements.
What is the definition of stock options?
A Stock option is a benefit given by a company to an employee. The employee is encouraged to buy stock in the company at a discounted price, thus helping the company.
What is the difference between having stock options that are vested vs not vested?
Vested stock options are ones that you can exercise and buy stock with, while non-vested stock options cannot be used yet.
What are employee stock options and how do I locate them within my company?
If you know that you willing to go beyond the limit on building your own finance with employee stock options you don't have nothing to worry about. you'lll know when you get started
