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Updated Jan 05, 2024

Stock Options Profit Calculator

Mike Berner
Mike Berner, Senior Analyst & Expert on Business Operations
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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 help determine whether you should exercise, hold or sell our stock options.

Key Terms

Years until option expiration date

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.

Total number of options

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

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.

Strike or grant 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.

Anticipated annual stock price return

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.

Annual dividends per share

Dividends are payments made by some companies to stockholders. Usually, dividend payments are made on a quarterly basis but, sometimes, they are made on an annual or ad-hoc basis. Enter the total amount of dividends per share that you anticipate receiving over the course of a year.

Opportunity cost

Enter the annual rate of return for an alternative investment instrument. This would be the place where you invest your capital if you weren’t putting it into stock options. For example, the historic rate of return of long-term United States bonds is 5% while the rate of return for stocks is 10% (before inflation).

Marginal tax bracket

The margin tax bracket refers to the highest tax rate that applies to your income. Consult the current federal income tax brackets and rates for your exact percentage.

Long-term capital gains tax

The IRS treats investments held for more than a year as long-term capital gains. You may owe 0  percent, 15% or 20% tax on income from dividends, depending on your tax bracket.

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 can 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
Mike Berner, Senior 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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