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