What does it mean to exercise stock options?

Question

I've noticed in the past few weeks at the company I work for (a 6-billion dollar company) the officers are exercising their stock options. The company is receiving cash from the transactions. What does it mean to exercise stock options?

Answer 1

I'm pretty sure it works like this...

A stock option is a right to purchase company stock at a specified price. So let's say you get the option for 10,000 shares at $20 (and the stock is currently worth $17 on the open market). Later on, the stock price has gone up to $25. You exercise your right to purchase the stock at $20. 100,000 shares @ $20 means that you've just bought $2,000,000 worth of stock from the company. Since the price is $25 in the stock market, you can then turn around and sell those 100,000 shares for $2,500,000, and you just made $500,000.

Answer 2

Exercise Stock Options

Answer 3

Exercise Options

Answer 4

1

Answer 5

It just means that you are 'activating' the right to either buy or sell a set number of shares of stock of the company that granted you the options.

In your company's case, the officers are exercising their right under the option to buy the stock for a certain price. Most likely the price is lower than what the current price is. Those officers buy the stock usually from the corporate treasury (thus the company gets cash in the deal). The officers usually turn around and sell the stock immediately in the open market and pocket the gain.

Answer 6

Exercising stock options means buying stock that the company has agreed to issue at a set price. Usually, the company gives these options to employees as an incentive to work hard and increase the value of the company. If the market price of the stock goes up, the options are called "in the money," which means the option holder could make money by buying at the lower set price and selling at the higher market price. Your company might be receiving cash from the employees themselves for the purchase of the stock, or from the employees' stock broker, if the employees are doing a "cashless exercise." In a cashless exercise, the employee buys and sells the stock simultaneously to eliminate the need for the employee to come up with the cash to buy the stock. The broker pays the company for the stock directly with the money it receives from the party the employee sold the stock to. The employee concurrently gets the difference between the option price and the market price, minus withholding taxes.

Answer 7

A stock option gives the owner of the SO the right but not the obligation to buy or sell a stock at a previously agreed upon price. When you decide to buy the stock you are exercising your stock option.

Answer 8

A stock "option" means you have the option to buy a certain number of shares at a fixed price "strike price." Often this price is less than the market value of the stock today. If you exercise your option to buy them it means you buy them. Owning stock options does not mean owning stock. You have to exercise the options to buy them and then you buy them.

Answer 9

Well
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Answer 10

The company tells the officers essentially, "Here is this piece of paper that gives you the right to buy x number of shares at a price of $whatever. You have to make your decision by (a certain date)." So, the officers wait. If the stock is selling for more money by that date, then they say, "Wow--look at all that free money." So, they exercise the option and say, "Sure, here's my check, I'll buy those shares for cheap. Then, once I own them, I'll probably turn around and sell them the same day and pocket the cash." It's good to be one of those officers. They say, "I'm the one with all my hard work who is making the company succeed. So give me more options." Yup, it's a good life for lots of 'em when it works that way!