Got stock options but don’t quite know how to make money on them? We’ve got you covered.
In your employee compensation package, stock options can be the most confusing item. Words like “shares” and “strike price” and “vesting date” can set your teeth on edge. What in the world are they supposed to mean? And how are you supposed to know the math to calculate your company’s CapTable? You want to scream and tear your hair out.
Or maybe not.
Maybe you know exactly what these terms mean, but you’re still unsure how to optimize your stock options.
Whether you belong to the first or the second club, what you’re missing is knowledge.
“Duh,” you might think. “That’s obvious.”
Sure. But what we mean is specific knowledge that CFOs and investor bankers have, and you lack. This knowledge was secret…until now.
Think of it as a roadmap.
If you don’t have the map to your destination, you’ll never get there. You might get lucky and find it by chance, but that’ll give you a 1% rate of success. Which means 99% of the time you’ll fail.
Same with stock options. You need to know your end goal. That means you need to pick the fastest lane on the highway and take the right exits. Then you’ll arrive at the right destination and on time.
But before we get to the good stuff, let’s cover the basics.
(Already know the basics? Jump straight to the map.)
A Stock Option is your right to buy your company’s shares at a fixed price at a fixed future date. You buy your company’s stock at a lower-than-market price, then sell it and pocket the difference.
“One of the best programmers I ever hired had only a High School degree; he’s produced a lot of great software, has his own news group, and made enough in stock options to buy his own nightclub.” — Peter Norvig
If you’ve never seen stock options, you’re likely to get confused.
From Wikipedia: “Many companies use employee stock options plans to retain, reward, and attract employees, the objective being to give employees an incentive to behave in ways that will boost the company’s stock price. The employee could exercise the option, pay the exercise price and would be issued with ordinary shares in the company. As a result, the employee would experience a direct financial benefit of the difference between the market and the exercise prices.”
Here is how stock options look like in GrowthAdvisor.
Over time the value of your stock options will look like this:
And your personal gains on your stock options will look like this:
These are hypothetical numbers, but they don’t look too bad. In fact, they look really good.
The simple math of it is, stock options can skyrocket your wealth.
“If you work for Google or Apple, stock options give you a chance to share in the increasing value of the company. In the N.F.L., nothing like this happens; the players, though rich, are just working stiffs like the rest of us.”
— James Surowiecki
The benefits of owning stock options are clear.
You can earn money via your salary alone, or you can earn money via your salary and your stock options. The combined sum of that money could be double your salary. Or triple. Or quadruple.
The amount of money you’ll make will depend on how smartly you’re playing the game of employment.
To play it smart, you’ll need to know:
How to negotiate stock options?
How to avoid common mistakes when negotiating stock options?
When to exercise stock options and when to keep them?
How to exercise stock options?
Related Article : When Is the Best Time to Exercise Employee Stock Options?
Growing your wealth with stock options is easy, if:
You have the exact roadmap that lets you know which company to work for;
You know how to negotiate the best stock options package;
You know when to leave your present company;
You know which new company to join;
But remember. Stock options ONLY have value if your company has a successful exit. You want to maximize your return on a successful exit, but you can’t rely on it to happen.
Employee Stock Options (ESOs) don’t have to be complicated.
After you’ve educated yourself on the basics, you can rely on GrowthAdvisor to crunch the data while you sleep. Simply check your account once a month or a few months to see the latest reports. Spend the rest of your time living and having fun.
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