What are employee stock options and how do they work?

What are employee stock options and how do they work?

Employee stock options are contracts that give employees the right to buy a certain number of shares at a predetermined price, known as the exercise price, within a specific time frame.

What are the benefits of having stock options?

The benefits include potential financial gain if the company's stock price rises, alignment of employee interests with company performance, and tax advantages in some cases.

Are there any risks associated with stock options?

Yes, risks include the possibility of the stock price falling below the exercise price, which can render the options worthless, and the potential for tax implications.

How do I know when to exercise my options?

It's best to exercise options when the stock price is significantly above the exercise price, but consider your financial situation and tax implications.

Can you explain the difference between incentive stock options and non-qualified stock options?

Incentive stock options (ISOs) offer tax benefits and can only be granted to employees, while non-qualified stock options (NSOs) can be given to anyone and are taxed as ordinary income upon exercise.