Receiving a stream of stock options from your employer can be an incredible benefit. Our calculator can help you assess precisely how much you might get from your company’s grants. You just have to add some details about the stock’s current market price and the value it appreciates at. You can also add any additional annual grants over any length of time to see the total worth of your stock options. This can help you decide if it is worth taking the options as a form of compensation. If you want to know the value of a single grant, please view our stock option calculator.
What are stock options?
Many companies offer stock options to their executive employees as extra compensation. The annual grants are used as an incentive for growth and performance. By giving employees stock options, their compensation becomes directly tied to the success of the company. This can ensure employee initiative to propel the business forward.
By adding the information related to your company stock options, you can find out the total options granted to you over a length of time. This can be helpful for determining their value and planning your savings. Knowing the value of your stock options will help you to analyze the payment being offered to you.
Having a process-driven strategy is vital when evaluating your stock options so that you can make the best financial decision. You will have to take into account to your vesting period and the strike price versus the stock market value. You should also be familiar with the tax implications that may arise from exercising your options.
If any of this sounds confusing, you can read more about these legal terms below.
What does it mean to exercise my options?
Exercising is a legal term that means to put in effect a right that is specified in a contract. In the case of options, the option holder has the right to buy or sell the underlying shares at a specified price on or before a future date. That specified amount is the strike price. If the stock price in the market exceeds the strike price, you can profit from exercising the stocks.
In simple terms, buying and selling your company stocks is the act of exercising your options. The time before you are allowed to act on your options is known as the vesting period. You have to wait until that date to exercise your options.
How accurate is the calculator?
The calculator is fairly accurate in its assessment of the future value of your stock option grants. However, these grants are tied to the potential performance of the company, so all scenarios are purely hypothetical. There may be unanticipated variables that may increase or decrease the future value of the stocks. You may need to do new calculations as details change.
This calculator also does not take into account any taxes that you may be subject to, or the cost to exercise your options. Further calculations may be needed to assess the after-tax value of your stock options.
Using the calculator
The annual stock option calculator is very easy to use. You just have to supply some information about your company’s stock options. Let’s review this together starting with the current stock price.
Step 1: You can add the current stock value to the first line of the calculator. You can use the up or down arrows to make this input easier. This is the current market price of the company stocks.
Step 2: On the second line of the calculator you should include the value that the stock appreciates at. This is the rate of growth that is expected from the underlying shares of the issued options.
Step 3: The third line of the calculator requires the number of years you expect to hold these options. You may add any value between 3 and 25 years here.
Step 4: Finally on the fourth line you should include the amount of annual stock option grants you will be given each year. This amount is pre-determined on your contractual agreement with your employer.
Once this information is added to the calculator, you can view your results.
To the right, there is a smart prompt of your total options granted, followed by the average stock price. The total options granted refers to the number of stock options you may have based on the number of years you plan to hold the options. In this case, the strike price is the projected stock price. This figure will tell you the average price of your company stock.
Strike prices will vary between companies. It is impossible to predict with certainty what the strike price may be as this will be pre-determined by your employer.
Below the inputs, you can see a quick reference to the monetary value of your stock options. This figure is based on the value of the stocks and the rate that they appreciate at.
In the first result tab, you will find the stock option bar graph. This graph contrasts the value of your stocks over three separate time intervals. This chart may help you decide how long to hold the options. You should consider your vesting period and how long you plan to work for the company.
The next tab is a graph of the stock price, which charts the value of the stock over time. Here you may see how the stock appreciates. You can hold your mouse over any instance to get a pop up of the exact value at that point.
Finally, the last tab is a table summarizing the value of your options at the end of each year. You can expand or contract any of the columns for better viewing. You can also highlight a line by selecting it.
Once you view this information, you should be able to make an informed choice about receiving annual stock options. Stock options can be a reasonable means to supplement your income. It often depends on how long you plan to be with the company. In some cases, you may have to negotiate your contract to more favorable terms.
Remember to bookmark the annual stock option calculator. You can save it to the home screen of your smartphone or tablet to have quick access to this tool. You can return as your company stock appreciates or your employment changes. If you found this page useful, you can promote us on social media using the share feature.