Options Trading Tutorial

What do stock options do for me? How do I use them?

I just got a job offer that includes 15,000 in stock options. I'm guessing this is a good thing (the other benefits are great) but I really don't understand what stock options are and how to use them. Does this mean I can buy 15,000 in stocks? Couldn't I buy them without stock options? Imagine a scenario where company A offers salary X plus 15,000 in stock options, but company B offers salary X + 15,000 with no stock options. Which would you pick?

Public Comments

1. Stock options are normally given to an employee as incentive for them to work harder because normally the employee will be able to to given X number of stocks but the stocks that they hold are restricted for example the employee may not cash in those stocks in a number of years. Well, think about this. This is something like money control. If your company like the feds are going to print an extra $15000 into the economy. There will be more money in the economy right and hence an inflation may happen in the economy and that extra money will worth less than its paper value. Similar to the money example, if you are given a stock option, your company will be issuing more stocks into the market. Unless there is a stock buy back program by your company, the value of the stocks when you try to redeem them from the market will be less than what you were given at the time you start working. However, think about stock options as a bonus for your work since it is part of your compensation. Not all companies pay their executives stock options.
2. Employee stock options are a good deal for both the company and the employee. They give you the right, but not the obligation, to buy company stock at a later date, hopefully at a below-market price. The company rewards you at that later date without having any further out-of-pocket expenses. Your per-share cost, called the strike price, will be set at the next company board meeting after your hire date. Your options then vest over a period of years. Once vested, you can exercise the options if the market price of the stock is higher than your strike price. Most employees buy and sell the stock the same day. This is free money. Of course, if the company folds or the stock doesn't rise above your strike price, the options are worthless.