Dumb it down for me - stock options

luvmagoldn

I was notified of my merit increase today and at the same time told I've been granted stock options.  I know, I know - I work in HR.  But I don't oversee executive comp. 

Is the jist that I come up with the money to buy the certain number of shares they've granted, wait through the vesting period, then sell before the expiration date all the while hoping for a profit?  Is that it?

Any experiences you can share about exercising options?  Any words of wisdom or things to look out for?

TIA

pdxjenn

Stock options can be great if you are given options at a time when the stock has potential to increase in value. I worked for a large company and was given options (I chose to allocate about $5k) when they were at their highest...

Let's just say that the stock will NEVER go higher than that and therefore my options are worthless, along with the $5k.

 There should be someone within your company that can help you... or your investment company?

shouldbworkin

I don't know and I work in financial services.   All I can say is that when they were granted to me, I did nothing.  When I was laid off, my options were exercised and I was given a promissory note for $$$$$ to be paid at a later date.  I got 1/2 last year and will get half next week and it's been AWESOME!

TryingforBaby1

There is probably some sort of vesting provision on the options. For example, some or all will vest if you are still working there in X months/years. Once the options are vested, they become exercisable. The hope is that the stock price will increase and in the future you will be able to exercise the options to purchase company stock at the lower price (the strike/exercise price- usually the stock price on the date of grant.) You would never exercise them if they never become "in-the-money" (i.e., stock price is greater than the exercise price). If the stock price is less than the exercise price, they are considered underwater.

 As far as exercising, you should be able to do a cashless exercise. Therefore, you exercise the options and the amount you have to pay for the shares (at the exercise price) and any taxes due come out of your profits. The rest is yours to keep.

 

luvmagoldn

Thank You!

alwaysduke00

Agree with the below.  With the exception, that you might want to exercise your options on the early side and actually purchase the stock with money if the company pays a hefty dividend.  (Although I have no finance background...but DH was given options and so I thought a bit about all the scenarios.)

 

TryingforBaby1:

There is probably some sort of vesting provision on the options. For example, some or all will vest if you are still working there in X months/years. Once the options are vested, they become exercisable. The hope is that the stock price will increase and in the future you will be able to exercise the options to purchase company stock at the lower price (the strike/exercise price- usually the stock price on the date of grant.) You would never exercise them if they never become "in-the-money" (i.e., stock price is greater than the exercise price). If the stock price is less than the exercise price, they are considered underwater.

 As far as exercising, you should be able to do a cashless exercise. Therefore, you exercise the options and the amount you have to pay for the shares (at the exercise price) and any taxes due come out of your profits. The rest is yours to keep.