An Example of How Stock Options Work
Understanding how stock options work is important before you use the stock option calculator. The best way to explain the concept is by giving a simple example. Let’s assume that your employer gave you an option to buy 100 shares of stock at $2. The contract will also mention a date before which the option cannot be exercised. This is called the waiting period. Now, suppose that when that period ends, the stock value reaches $4. You, as an employee have three options now.
You can simply convert the option into stock and buy the shares at $2, wait till the waiting period is over and sell the stocks. By doing this you will have $2 profit on each share.
You can even chose to sell some of the stocks and keep some to sell later. In case the value rises again, the profit will increase as well.
Finally, you can convert to stock but keep all the shares until the value reaches its peak. This is highly unpredictable but if your company is growing at an unprecedented pace, you can make an immense amount of profit just by waiting for the right time.
Yet, despite the uncertainty, it is very important to use a stock option calculator to get an idea of what you can expect.
Why Do Employees Offer Stock Options
Companies, both private and public, can offer stock options. Initially, companies used to offer this opportunity only to their higher level employees. Today, the benefit is usually open equally for all the employees. This is because it creates a win-win game for both the employee and the employer. Some of the reasons why employees offer these options include.
People have managed to gain tremendous amount of financial profits from investing in their company’s stock. Make sure you use a stock option calculator to keep track of your possibilities.