Options Trading Tutorial

How do Stock options work and would I still be entitled to them If I left the company that issued them to me ?

I've been working with this company for 2 year and we were promissed stock options after being with the company for a year. They are in the process of drafting them now. I dont see myself staying with the company for long but I dont want to lose the opportunity to cash in on these 2 years of hard work that I put in to build the company up now that they are looking to go public or take a private placement. How do they work exactly?

Public Comments

1. You will be given the option to buy the stock at a certain price (usually below the current price). I guess they could be options to buy at the current rate and then if you help the company raise the price above current levels you could buy at the previous price in the future. You can "excersize" the option and either hold the stock or instantly sell at market rates. If you just leave the job, you will probably not be "in" on the options, just like you would miss a "bonus" if they were given out a few weeks after you left. If you are terminated you would GENERALLY have 1 year to excersize the options. Not an expert here, but my best answer.
2. Stock options allow you to buy stock at a certain price regardless of what the current price of the stock is. In your case, your company might issue you 1000 options at $5 a share. Let's say the company goes public next month at $30/share. You would be able to buy your options for $5000 and then immediately sell them for $30000, netting you $25000. Alternatively, you could actually buy the options for $5000 dollars and become a full-fledged shareholder of 1000 shares. You could hold those shares until you wanted to sell them (you might make more because the stock price might go up.) There's a lot of tricky things about stock options though that you need to know. Most options grants are given according to a vesting schedule, meaning you are only given the options a % at a time according to how long you have worked at your company. Typically, if you get 1000 in options, your options will "vest" 200 a year for five years. The second thing is more important if your company stays private. The price of the stock is not determined like it is on a stock market. Only during certain events when the stock price is reevaluated - called liquidity events - will the price of the stock change. So, it's hard to tell how much your options are worth. Whenever you leave a company, you must either buy or cash-in all your vested options. (Unvested options just go away - you didn't stick around long enough to earn them). My advice to you - stick around until you figure out the terms of the grant, get as many options vested upfront as possible, and then buy those options (don't cash out) - especially if you think the company's going to be profitable in the future.