Options Trading Tutorial

Stock Incentive Option?

The company I work for is giving me a Stock Incentive Option. I have done very well for the company and they want to reward me equally. I have never been given a stock option before and I do not know what this entails. I have researched on the web and understand a little bit cleared, but still have tons of questions. My number of shares covered in the option is $10 000. And my exercise price is $2.00. What does this mean ? Do I have to now pay them $20 000 for the stock ? Are they giving me this stock for free as an incentive ? Where would I get $20 000 do buy stock right now ? Please explain what this means. Please help with any questions I need to ask. They did include a plan with the Option to make sure I understand how it works. But that does not tell me the above question I had.

Public Comments

1. An employee stock option gives you the right to buy ("exercise") a certain number of shares of your employer's stock at a stated price (the "award," "strike," or "exercise" price) over a certain period of time (the "exercise" period). qualified, or "incentive," stock options (ISOs). ISOs qualify for special tax treatment. For example, gains may be taxed at capital gains rates instead of higher, ordinary income rates. You can pay cash, swap employer stock you already own or borrow money from a stockbroker while simultaneously selling enough shares to cover your costs. questions: what is the exercise period? Are they really incentive options which are taxed at capital gains rates?
2. First off good for you for getting some recognition. BTW this is a "cheaper" way for your employer to compensate you vs. a cash bonus or salary increase however if the market favors your option grant you can make a lot of money even after taxes. You have been issued an ISO (incentive stock option) grant from your employer. This is NOT the same as a call option which is traded on a public market exchange. You have 1 stock option grant for 10,000 shares of your company stock at an exercise price of $2.00. To simply things there are three main "parts" of an ISO: number of shares, vesting schedule and exercise price. The numbers you stated mean that at some future date you have the right to buy up to 10,000 shares of your company's stock at $2.00 per share regardless of the market ask price at the time of transaction. You need to know your vesting schedule which is another way of saying how you can buy those shares: are you allowed to buy all 10,000 one year from now, are you allowed to only buy 2,500 per year which will take 4 years to to have the right to buy all 10,000, etc. you get the idea. Ask your employer what your vesting schedule is. ISOs typically expire in ten years but that is not set in stone. Also ask your employer what are the conditions in the ISO grant. As a few examples, what if you quit or are laid off before you are 100% vested? Do you have to use a broker the company specifies? Your plan should also answer such questions. The ISO does NOT mean you get free shares, until you buy shares you only have the right to buy them. You WILL NOT be a shareholder (no dividends, voting, etc.) until you buy them. The other answer is correct in terms of funding the purchase: cash, margin account, etc. My $0.02