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Updated Jan 03, 2024

Stock Option Calculator

How to Calculate the Value of Your Stock Options

Mike Berner
Written By: Mike BernerSenior Analyst & Expert on Business Operations
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Table of Contents

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Many employees receive equity as compensation, often in the form of stock options. This is common among senior executives and other employees who work in early-stage companies. Use our calculator to estimate the value of your stock options under different scenarios.

Key terms when using the stock options calculator

Current stock price

The stock price refers to the current market value of a single share in the company. When the stock price is above the strike price of your options, you are “in the money” — meaning that your options have value.

Stock appreciation

This is the assumed annual rate by which the company’s shares will grow in value. Keep in mind that this is only a hypothetical scenario and not a guaranteed outcome.

Number of options

This is the number of stock options awarded to you by your employer.

Strike price

The strike price is the predetermined price at which the company’s stock can be purchased by the options holder. When the stock price goes above the strike price, the options are considered “in the money” and hold value. If the options expire below the strike price, or “out of the money,” they become worthless.

Number of years

This refers to the time period that you anticipate holding the options. At the end of this period, the options will either expire worthless, or they can be exercised and sold for a profit.

What are stock options?

Stock options represent the right (but not the obligation) to purchase stock in a company. A standard stock option contract represents 100 shares of the underlying stock. These contracts last for a finite period of time from weeks to years. For certain industries and roles, stock options are a common form of employee compensation.

If the company’s stock price is above the option’s strike price at the time of expiration, it is considered “in the money.” In other words, the option holder is able to purchase the stock at a below-market rate. Option holders stand to make a great deal of money if the stock price rises significantly above the strike price of the option. However, if the option expires when the stock price is below the strike price, the option holder earns nothing.

What factors affect stock prices?

In the short term, stock prices are hard to predict. General economic conditions, managerial turnover and geopolitical events are a few of the factors that can affect stock prices over the short term. Over the long term, however, the stock price will generally track the company’s underlying performance. The more profit the company earns, the more the stock price will appreciate. If the company fails to generate a satisfactory return for shareholders, the stock price will suffer as a result.

When should you sell your stock options?

Ideally, you want to cash in on your stock options when the company’s share price rises above the strike price. Most stock option grants follow a vesting schedule, meaning that you can’t exercise your options until a specified date. However, you don’t want to wait until the stock options expire or you will forfeit their value.

Mike Berner
Written By: Mike BernerSenior Analyst & Expert on Business Operations
Mike Berner brings to over half a decade of experience as a finance expert, having previously served as an economic analyst for the U.S. Army Corps of Engineers. His expertise lies in conducting quantitative analysis and research, providing invaluable guidance for navigating the modern financial landscape. Berner, who has a bachelor's degree in economics and a bachelor of business administration in finance, enjoys simplifying complicated financial concepts for entrepreneurs and business owners. From deciphering the intricacies of business loans and accounting to identifying the best payroll systems and credit card processors, he offers comprehensive insights tailored to meet diverse business needs. Beyond dedicating himself to exploring and evaluating the latest financial solutions, Berner has also become adept at explaining how businesses can take advantage of artificial intelligence tools. His passion for sharing knowledge extends to various platforms, including Substack, TikTok and YouTube, where he imparts tips and strategies on topics like sales tactics, savvy investing and tax saving.
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