What is an exercise of stock options


Have an employee what is an exercise of stock options option plan? Many companies issue stock options for their employees.

When used appropriately, these options can be worth a lot of money to you. Your options will have a vesting date and an expiration date. You cannot exercise your options before the vesting date or after the expiration date. To understand how a typical employee stock option plan works, let’s look at an example.

00 a share and you decide to exercise your employee stock options. 10,000 to the brokerage firm handling the options transaction and you receive 1,000 shares of Widget. You can keep the 1,000 shares or sell them. You exercise your options and sell enough of the stock to cover the purchase price. The brokerage firm makes this happen simultaneously. You are left with 500 shares of Widget which you can either keep or sell.

You are left owning a total of 1,000 shares of Widget which you can either keep or sell. Different tax rules apply to each type of option. With non-qualified employee stock options, taxes are most often withheld from your proceeds at the time you exercise your options. This is not necessarily the case for incentive stock options.

Your employee stock option plan will have a plan document that spells out the rules that apply to your options. Investment risk, tax planning, and market volatility are a few of them, but the most important factor is your personal financial circumstances, which may be different than those of your co-worker. Keep this in mind before following anyone’s advice. Should You Keep the Stock? Keeping too much company stock is considered risky. When your income and a large portion of your net worth is all dependent on one company if something bad happens to the company your future financial security could be in jeopardy. An apples to apples comparison on financial advisor fees.

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