I have been offered a job with a consulting firm and as part of the incentive package they included a lot of stock options, "... at a specific strike price TBD based on 2007 option plan".
1. So my first question is what is a stock option and what can I do with them.
2. What do you think they mean by a "specific" strike price? Could different people be offered different strike prices?
3. Third question is how do I determine the value of this incentive?
Thankyou for helping me understanding this.
Tom
2007-01-26 21:27:30 · 4 answers · asked by tc 1 in Business & Finance ➔ Investing
Since I posted this question, I also learned that this company is privately owned, so I am really confused about an option to buy shares when the company is not listed on a stock exchange.
2007-01-26 23:16:08 · update #1
An incentive option is granted to employees at no cost to the employee. It will usually have a strike price equal to the stock price on a particular day, say the end of the first quarter. The company isn't constrained to set the strike at a current price: it may be higher or lower, depending on what they are trying to accomplish. Usually they expire in ten years, and there may be a minimum holding period before they vest (become yours).
You can cash them out any time after the vesting date. Their value will be the difference between the strike price and the price of the stock on the date you cash out. If the company has done well, the stock appreciates, and you can make a lot of money. But they could also end up being worthless. Either way, there is no risk in accepting them.
Since your company is non-public, you have a major problem with valuation. If there is a chance that your company may go public in the near future, these options may be worth a great deal of money, as the company will almost certainly appreciate through the IPO. If it remains private, you have no method of price dicovery. Management will probably compute fair value on an annual or quarterly basis, and inform you. Obviously, this isn't ideal.
The process of cashing out is usually accomplished through a special account at an investment bank or transfer agent. The company will set up this mechanism for you. You will simply notify them whenever you feel the time is right, and tell them how many options you want to cash out. The transfer agent will excercise the options, and simultaneously sell the shares: you will then get a check for the profit. It's pretty simple.
The gains are taxable. Whether they are taxed as income or capital gains will depend on whether the options are non-qualified or qualified, a question you should ask.
2007-01-27 00:09:06 · answer #1 · answered by anywherebuttexas 6 · 2⤊ 0⤋
1. A stock option confers the right, but not the obligation, to purchase shares of stock at a predetermined price. That price is referred to as the "strike price". What you can do with them, is to buy them at a price lower than market, as determined by investors on the stock exchange, and sell them at market, hopefully a higher price. Of course, stocks go up and go down continuously, so the "value" of each option you hold floats with the market price.
2. As you described it, "specific" strike price means that a formula exists to determine the strike price. If the option plan covers every qualified employee, the strike price would be uniform.
3. To determine the value, subtract the Strike Price from the Market Price, easily ascertained in Yahoo Finance, and multiply the result by the number of shares for which you hold options. Keep in mind that you can only take a snapshot of the value of your options since it varies with the market price.
Companies grant stock options as a motivational and retention tool. Employees are likely to be better performers if they have a stake in the success of the company, and in turn benefit from that success.
Good luck.
2007-01-26 21:43:26 · answer #2 · answered by David 2 · 0⤊ 0⤋
this is an incentive/bonus they're supplying you with free of cost. It does not come out of your gross sales. once you circulate away the organization or retire you ought to sell it lower back to the organization on the instant industry cost. you won't be able to sell it on the open industry via fact this is constrained inventory. in case you circulate away in decrease than 4 years you get the vested share. 25% after 365 days, 50% after 2, seventy 5% after 3, and after 4 years a hundred%.
2016-09-28 01:25:37 · answer #3 · answered by ? 4 · 0⤊ 0⤋
The short answer is you could get rich if the stock appreciates.
2007-01-26 21:43:31 · answer #4 · answered by jimmymae2000 7 · 0⤊ 0⤋