I've been sitting on my stock option paperwork because I don't really know what it all means. Now corporate wants it and I still have no clue what I'm signing. So, what am I signing? It's been explained as if we're bought by a public company, I could make a bunch of money. Do I buy the stock now? I think they asked for a check and I'm kinda confused how I buy stock that doesn't exist yet. What if I leave the company before we're bought? Do I still get stock? Any quick overview would be very helpful! Thanks.
2006-10-24 08:33:34 · 5 answers · asked by graybear 4 in Business & Finance ➔ Investing
Stock options give you the right -- but not the obligation -- to buy stock at a fixed price. It generally has an expiration date -- so if you don't decide to go ahead and buy the stock -- it expires worthless. There is usually no advantage in doing the purchase until you are near the expiration date -- unless the stock has appreciated & you want to sell the stock.
There are two types of stock options -- qualified (part of a plan that everyone gets) and nonqualified. If they are nonqualified, then you have to pay ordinary income taxes on the difference between what you pay & what it is worth. If the company is pre-IPO, then there is a tax advantage to exercising the options before IPO.
If they want money from you -- that probably means that they want you to exercise those options now. You may be close to the expiration date. If the optinos are worth something, you should not let them expire. Ask them what the fair market value is of the stock. If it is greater than the strike price (that is the price you have to pay per share) -- then buy them.
One problem you will have is that your company isn't public yet. Ask them when you are likely to be able to sell the shares. If you can't afford to hold on to the shares until then -- then you should do one of two things -- either let the options expire -- or find someone (possibly in the company) who will buy the shares from you if you exercise.
You ask about buying stock that doesn't exist. Just because a company isn't public doesn't mean it doesn't have stock. It just means that there is no public market for the stock. Private markets still exist.
2006-10-24 08:47:16 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
Think of it as buying the company's stock at a discount (usually). First, check the price of the stock and see that the option price (in your stock option plan) is lower than the market price for the company's shares. If it isn't, then decline to buy this year. But, if it is (the usual case), then you have an opportunity to make some money, almost free--you will have to pay taxes on the increased value, sometimes. Still, you will have to pay them for shares. I had a chance to buy Wal-Mart stock for something like about a third-off the market price, which at that time was about $5 a share (over $53 today), but I was only earning about $1.60 an hour back then and they were shorting my wages for work off-the-clock during the store opening (which they promised they would make up but never did, at least while I worked there). I'm not advising it, but just telling a story, at another company an option went out and a co-worker mortgaged his house and bought all the options he could, then sold them at the market price and paid cash for a bigger house with his profits. Not everyone gets a good deal. A friend was at a company who was going through hard times, we gave him a hard time because he was paying out of his paycheck for the company stock at the option price which was almost twice what the shares were selling for--IBM still hasn't recovered those kinds of stock prices.
The link below is to an article on this kind of thing.
2006-10-24 09:30:46 · answer #2 · answered by Rabbit 7 · 0⤊ 0⤋
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2016-10-02 22:09:55 · answer #3 · answered by greenwell 4 · 0⤊ 0⤋
They are probably asking you to purchase options, which you should probably do if you think that you work for a decent company.
2006-10-24 08:43:37 · answer #4 · answered by Anonymous · 0⤊ 0⤋