The basics of stock options
I’ve been doing a little investigating on investment choices — really just idly reading at this point — and here’s what I’ve found regarding stock options:
A stock option essentially means that there is an agreement in place between two parties (usually the company and an individual) that allows the individual to buy stock at a certain price, if they choose to do so.
In the case of employee stock options, the employee may have the opportunity to buy a certain number of shares of stock each year at a certain price. This price is set regardless of what the stock goes for on the open market. This can be a good deal, especially if the price you can buy the stock for as an employee is significantly less than what it could be bought for otherwise. There may be restrictions on the deal, however, which can be a downside. Another potential downside to stock options (particularly employee stock options) is accepting them in lieu of other compensation or in exchange for reduced compensation. If you do that, you’re essentially gambling that you’ll be able to sell the stock later for a profit if you exercise your options, and that that profit will be worth at least as much as the time and effort you gave in exchange. It could be a lucrative deal, but since it is a gamble, it could also mean that you get little or nothing for your effort, or possibly even lose money.
In short, stock options are risky, which is not something I’m interested in right now. I did once have some employee stock options, but those were contingent on the company actually going public, which it never did.
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September 21st, 2006 at 8:44 am
Another thing to remember with employee stock options is that you first need to Buy the actual stock. Then generally you have to hold on to them for a period of time, after which you can sell them. So in order to make money, which in itself is not guaranteed, you first need to spend it. Or you can trade on the stock options market, of course. Not to mention that employee stock options generally don’t mature for a few years, and then you only have another few years to exercise the options, or you lose them.