Here are some employee stock options basics that you need to know before you start investing on an ESOs from your company. An employee stock option (ESO) is an awarded benefit given to corporate employees as an incentive which serves as a tool to improve the company’s market value.
It cannot be traded on the open market and also gives employees a right to purchase a predefined amount of shares of the company at the current, or strike, price, within a certain time frame, after which the options expire worthless.
If the experience rising of their stock price in the exercised period, the employee can exercise the ESO by simultaneously buying the discounted shares and selling them at the higher market price. On the other hand, this strategy cannot be done if the stock drops below the strike price. There are three main kinds of ESOs that need to be known as employee stock options basics- non-statutory, reload and incentive options.
There is a non-statutory ESO which is the standard type of ESO. An employee cannot exercise the option within a “vesting” period of one to three years, and earns the difference between the strike price and the current price, multiplied by shares sold. It is important to remember that although most non-statutory ESOs become executable within a one to three year vesting period, some are locked with a “graduated vesting” scheme. To know more about employee stock options basics, you can learn online references which are adequate enough to give you overviews about ESOs and ISOs strategies.