Employee Stock Option

Benefiting From An Employee Stock Option Plan

Employee stock option plans are becoming increasingly common as companies compete for quality workers. At a time when there is an increasing trend for people to move from one job to another, far more than there ever used to be, companies are finding a need to come up with an incentive to keep good workers within their own organization. One possible way of doing this is to provide incentives which will grow in value the longer the worker stays with the company. The system is not without flaws, both from the point of view of the employer and the employee, but it has plenty of good points.

The basic idea of employee stock options is that they allow a worker to buy shares in the company, at a predetermined level. This is obviously a major incentive for a good worker to choose that particular company, as there is plenty of potential for the price to rise, locking in a risk-free profit. Of course, this does not always happen, but inflation will usually ensure that a company's share price will rise in time unless something goes fundamentally wrong.

If the share price does not rise, neither the company nor the employee has actually lost anything, because all the employee had was an option. There were never any shares changing hands. The option to buy at a certain price is obviously never going to be taken up if the price remains lower than that option price. The company will not gain any benefit from an increased demand for the shares, but they also will lose nothing.

If a worker has employee stock options, then there are several things they can do convert this opportunity into money. The first and most obvious is simply to wait until the share has risen in value, and then buy and quickly sell on again in the open market. This way, you are guaranteed to make a profit, although there is of course no guarantee that you could not have made a far greater one had you held the shares for longer. There is obviously risk involved in any choice you make as to when you actually sell the shares.

You can also try to profit from your employee stock option allocation by buying to hold. If the price has gone higher when you buy at the option rate, you can just set a stop loss point at which you will sell the shares to get out with a small profit in case the price reverses, and then wait and see what happens. If the price stays above the stop loss level you have set, you will continue to collect annual dividends on your investment. You can keep moving the stop loss point higher to lock in more profits, meaning you are guaranteed to benefit handsomely from your employee stock option.

 

 

 

 

 

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Technorati Tags: Employee Stock Option, Stock Trading, Employee Benefits

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• Stock Options Compensation
• Stock Option Valuation
• Restricted Stock Options
• Buy Stock Options
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