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| Stock Options: Striking It Rich? |
| What can turn an underpaid 20-something programmer for a social media company into a millionaire overnight? Two words: stock options. Stock options used to be given only to management as part of their executive compensation package, but these days more and more firms are giving them to the rank- and-file employees to attract talent and to keep the top performers happy. |
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| A stock option gives you the opportunity to buy stock at a set price, called the option, or exercise, price. If the option price is less than the current market price of the stock, you'll make the difference as profit if you exercise, or use, your options. |
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| For example, say your company gives you 1,000 options with an option price of $5. After two years, your company's stock price has risen to $10. By exercising your options, you could buy the $10 shares for $5, sell your stock, and walk away with a $5,000 profit. Of course, you could also hang on to the stock if you wanted. |
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| By granting stock options, your company gives you a chance to share in its fortunes. You'll usually have to wait awhile before you actually own the options your company gives you, though. Vesting schedules, or the time you'll have to wait before you own your options, are different at each company, though a few years isn't uncommon. |
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| Stock options can be a major component of your retirement nest egg, especially if they make up a large portion of your pay. However, you don't want to put all your eggs in one basket. So even if you have a ton of stock options, you'll want to maintain a diversified portfolio by investing in your employer's retirement plan. |
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| A stock
option's exercise price is: |
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