![]() Out of the Money – This is a term used when the current market price is below the exercise price.In the Money – A term used when the current market price of the stock exceeds the exercise price, this means that the holder of the option can buy something at a lower price than what they can sell it for.For incentive stock options, the bargain element may be an adjustment item for calculating AMT. Bargain Element – This is the difference between the exercise price and the fair market value at exercise.If you do not exercise them, the options expire regardless of whether there was value in them or not. Expiration Date – This is the last day that you can exercise your options.Working from the grant date, the vesting schedule will detail when some or all of your options vest. Vesting Schedule – Employee stock options are issued with a schedule that details when the options become vested.Before this day, you may not have the right to exercise your option to buy your shares. Vest Date – This is the day that you can exercise your right to buy and take delivery of the shares.Regardless of the future value of that particular stock, the option holder will have the right to buy the shares at the grant price rather than the current, actual price. Exercise Price – Also known as the strike price, the grant price is the price at which you can buy the shares of stock.Grant Date – This is the day that you receive your stock options.Employee Stock Option Terms You Should Knowīefore we continue, let’s first define some commonly used terms and concepts that are associated with stock options. In one way, an employee stock option offers you a “free” opportunity to participate in the growth of company stock without investing any of your own money. Should you decide to exercise your option, you know what you’ll pay to buy your shares versus what the current market value of the shares is, and therefore, what your profit will be. Why pay more for something than you need to?Ī key feature of employee stock options is that they give you the right to exercise (or the right not to exercise) your option. If the future stock price appreciates above the stated exercise price (the price at which you can purchase the stock via your option), the stock options are “in the money.” This is where the agreement can offer a significant benefit: you can exercise your employee stock option, which means you buy shares of stock at a grant price that is lower than the current market price.īut if the current price of the stock falls below the grant price, the options are “out of money.” In this situation, you wouldn’t want to exercise your right to buy shares at your specific grant price. Access to employee stock options represents an agreement between you and your employer that allows you to purchase a specified number of shares of the company’s stock at a fixed grant price for a specified period. ![]()
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