Let us break this down
1. You graduate from college
2. Get ready for your first day of work in the city
3. Sign your new contract
4. That includes 100 stock options
5. They are not vested yet (locked)
6. After some time they become vested (unlocked)
7. You feel blessed because those options are now yours #wayup
8. You have come into some money #moneyface
Now, let us piece it together; first, you graduate from college and receive employment at a company in the city, you head into work and are given a contract to sign that includes 100 stock options for your company. These are locked and not yet vested. After some time passes they become vested and you feel blessed because you are able to purchase stock in your company and make some instant cash!
Side Note: Vesting is the time you must wait till an option becomes yours, it is a way for employers’ to incentivize you to stay.
Congrats, you are one of the lucky ones that have been offered stock options at your company; be it a start-up or a large corporation, but what really is a stock option? It is a contract that states a certain amount of stock that you can purchase at a fixed price when you are vested, no matter what the current price of the stock is. For example, you can get an option to purchase 100 shares at $5 in 2016, now say you are fully vested in 2018, and the stock is worth $15 in 2018. You now get to buy all the shares at $5 and make an instant profit of $10 per a share, which means $1000 profit right away! #TREATYOURSELF *Remember it is an option to purchase, which means you still have to come up with the $5 per a share to own the stock
There are two main types of stock option plans, each with their own benefits and are given to different levels of employee’s.
•Non-Qualified Options: NQO’s are usually offered to most employees and are the most common form of options.
•Incentive Stock Options: ISO’s are usually for executives as they have favorable tax benefits.
Being offered stock options is very exciting and it is important to understand the vesting schedule and taxes that come along with the options. Orca, understands that there must be proper planning and that you are purchasing these options, unlike Restricted Stock Units. It is key to plan and not overload your portfolio with one stock to maximize your profit and lower your risk, this is part of the Orca mantra and what our partner advisers believe in.