Options Trading Tutorial

How are Employee Stock Options taxed in US or any other country?

Public Comments

1. whoa idk
2. The option is not taxed until it is exercised, which means that the holder of the options sells the stock, and takes the profit from the option. Example: employee got the option to buy 5,000 shares at $1.50 per share. (To be proper, that was the share price on the day the options were granted.) The employee has no incentive to sell the shares (which he must buy for $1.50 each) until the share price is at a high enough level to make a nice profit. Time passes. The share price is now $6.50 per share, and the employee decided this is a good time to exercise the options. He then does a dual transaction: he buys the shares from the company for $1.50 each, and sells them for $6.50 each. He now has a profit on he options of $25,000 (less broker commission.) The profit is taxed (in the US) as ordinary income, since he owner didn't actually own the shares long enough to qualify for long-term capital gains tax treatment.