Unlock Your Financial Potential With These Stock Options Secrets

A stock option means that the buyer has the right to buy (or sell) 100 shares of a stock, within a fixed period of time. In the UK it’s called a share option.

Employee stock options

Stock options are a popular employee incentive, as they encourage employee investment in a company (quite literally) at relatively little cash expense to the company itself. The idea is that the employee is able, at the end of the period of time, to buy the shares at the grant price then sell them on, hopefully at a higher price.

Key terms

A stock option is a binding contract so it’s important to understand the terms involved:

Puts and calls – put options means the buyer can sell, call options means the buyer can buy the stock.

Grant price – the price of the option agreed (usually the market price at the time of granting)

Premium – the payment the buyer makes to the seller. This is because of the risk involved in the obligation

Strike price – the price at which the shares are to be bought or sold

Underlying asset – the security which the seller has to deliver

Options style – American style means the options can be exercised (ie. bought or sold) any time up to the expiration date. European style means options can only be exercised on the expiration date itself. Most stock options are American style

What are the benefits of stock options?

Stock options can be a great employee benefit – as long as you believe in the company you’re working for! While it requires a little investment, if you think your company is going to increase in value it can be a great way to earn money further down the line.