Monday, December 24, 2007 11:12 AM
What are stock options?
Paper for the recycling bin, if you got them from most Internet startups; a billion dollar check if you have them from a place like Google or Microsoft. For a lot of companies, handing out stock options to employees is a way of adding to their compensation packages without spending a lot of cash upfront. Stock options are a future proposition, a promissory note from the employer that the holder can buy a certain amount of company stock at a certain price under certain conditions.
The return can be great, but it’s not guaranteed. For one thing, the company has to be a public company traded on the stock exchange. If you get stock options from a startup company that never goes public or goes under, your options aren’t worth anything. If the company is publicly traded but the share price never goes above your option, then you may never want to exercise it.
Then again, you could work for one of the lucky companies that offered you stock options at something like $3 a share, and the share price is now in the hundreds, in which case you'd be rich. You could buy up your allotment and then sell it back on the open market at the going rate (assuming, of course, that there are no restrictions on how much you can sell at one time), reaping a great profit.