Things you should know about Employee Stock Options
The thought of owning, let alone exercising, an employee stock option can be very intimidating to some. Questions of how profitable an employee stock option can be and how much risk it will entail to exercise them often arise. There are some employees who are wondering if they can exercise their employee stock option even if they have insufficient money, while others wonder how they can get their boss to allow them to have employee stock options too. To answer these questions and other inquiries about employee stock option here are a few of the things employees have to know about employee stock options.
The rank and file employees would be delighted to know that employee stock options are not limited to only the top, managerial and supervisory positions. A study conducted showed that more and more blue chip corporations or those stable, multinational corporations have chosen to use employee stock options as a way to benefit their employees, all of their employees, even the rank and file. Now, even those that are not at the top can enjoy the benefits of employee stock options.
Despite the stock market crashes that we have all witnessed through the years, a report published by the National Center of Employee Ownership showed that there are currently nine million employees in the United States that take part in employee stock options. This is a tremendous leap from the one million employees that participated in employee stock options ten years ago.
Employees that have been given employee stock options, however, should carefully study which kind of employee stock option they are getting. Is it the qualified employee stock option wherein the employee gets to enjoy the benefits of tax deductions or exemptions or is it the non-qualified employee stock option where the employee gets no tax benefits. Knowing the kind of employee stock option can help you avoid any added expenses that may surprise you once you choose to exercise the employee stock option.
If you do choose to exercise your employee stock option, you have three choices on how you can exercise your employee stock option. The first choice is probably the more traditional choice: obtain the corporation’s stocks by paying for it with good, hard earned cash. A second way is to talk to your boss and arrange a stock trade. This happens when you already own some shares of the corporation’s stock and in order to buy you more stocks at a cheaper price you can exchange your existing stocks and buy the stocks that are underlying your employee stock option. It is a good way to spend some of your unrealized capital gains.
If you are an employee and you have employee stock options, it has been said that holding on to your employee stock option for as long as you can without letting it expire is the best thing to do. Letting the underlying stock appreciate and increase in share price would yield you the highest capital gains or profit. It is a good idea to hold-off exercising the employee stock option until the stock has reached the maximum share price it can reach without expiring.