Stock Options


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Understanding stock options can be a valuable asset when being employed by a new company. In the past, stock options had only been offered to higher ups as an incentive to come to the company. As of recent, stock options have become available to the average Joe working within a company, which also helps to diversify the availability of that stock into different income brackets, opening up the buyer pool. In addition, over the years, many people who have taken a nontraditional route for compensation have taken stock options over paid compensation for work rendered and have come out far beyond what a salary would have paid. The availability of stock options has given many employees the opportunity to have a hand in their own retirement as well as their ability to wealth build in their own lifetime. Regardless of employment type or status within a given company becomes irrelevant as all employees ten to be open to purchasing stock options, giving way for new investors to enter the pool of funding their own well being. Continue reading to understand the basics of stock options.

What are Stock options?

The first step in being able to attain and have stock options, is understanding what they are in the first place. Stock options give an employee the opportunity to own stock in their company of employment. Not unlike how government bonds work, stock options often act as an incentive for employees to work more efficiently because the survival and profit of the company is now also a vested interest. Employees are given a number amount of how many stocks they are allowed to purchase over a set period of time, often at a discounted price than what the stock would be selling at on the trading floor.

Types of Stock Optionsstock options

There are two main or common types of employee stock options: Incentive stock options, and non-qualified stock options. Availability of these options are usually only available to certain types of employees. So while stock options are open to most if not all employees, these two types are only available to different types of employees.

Non-qualified stock options are usually open to be purchased by the lower level employees. But there is an advantage to them. These types of stocks can be sold off at a discounted price, from the stock market’s trading price. They can also be handed down to children or written over to charities, if such action is allowed by the employers.

Incentive stock options are usually only offered to the execs, because they carry more clout and pay out. But the name is not misleading, they are specifically designed and offered to higher ups as incentives to work for specific companies. The difference between these other than availability to whom they are offered, but the way they treated via taxes. Usually profits made off of stock options are treated with a higher tax against them, also known as the capital gains tax. Incentive stock options are taxed at a lower rate than other would traditionally be applied to other kinds of stocks.

Stock options in play

Now that you have a base understanding of what stock options are and how they are taxed, it is important to understand how to sell them as well. Selling your stock options is often frowned upon, because the traditional practice in play, dictates that you should sit on your stock options. The idea like any kind of long term investments, would dare the investor to understand how the stock should work and look at a more long term profit than that of a short term gain. Often with employees seeking stock options, that is the very practice that is being applied, unless you are looking for a short term kind of employment. But you should ideally want your company to grow and with it your stock price. If you are buying it at a discounted price, that doesn’t mean that you are selling it at the discounted price. In fact, when it comes time to sell you would be selling it off at full market price, meaning that you would be making a profit and then some, because of the discount on every stock you purchased in the first place.

Stock options are a great way to plan for your savings or retirement because they give you a hand in your own destiny. If the company you are employed by offers the ability to transfer your stock options to your children, it becomes possible for multiple generations to own and sell stocks of well established companies. Wealth building doesn’t have to occur just in your own lifetime, but can be spread out to other generations or offspring, that can help make a more secure future for them as well as your own retirement.

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