b asked in Business & FinanceInvesting · 11 months ago

What is stock options in salary ?

4 Answers

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  • 11 months ago

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  • 11 months ago

    Since I do not know what you know I will start by saying what a stock option is. An option is a contract between two parties, a holder and a writer. The option gives the holder the right, but not the obligation, to make a make a stock trade with the writer of the option for specified number of shares of a specified stock at a specified time in the future. If the holder exercises the option the trade will be made. If the holder does not exercise the option before the end of the specified time the option will expire worthless.

    There are in general two ways people become option holders. One way is a trade between two investors. that is not part of a salary and not part of the answer to your question.

    The other way people become option holders is to get them as compensation from the company that issued issued the underlying stock. That compensation given to employees is a fringe benefit as part of their salary. The options may be given directly, such as "non-qualified options" or "incentive stock options." Some companies have "employee stock purchase plans" that allows employees to purchase stock options out of their salaries on a regular basis. In any of these situations the employee is the stock holder and the stock writer is the company that has issued the stock.

    You can get some information on these different types of programs at

    https://fairmark.com/compensation-stock-options/

  • R K
    Lv 7
    11 months ago

    it means you can designate part of your pay to buy stock in the company you work for.

  • NA
    Lv 7
    11 months ago

    There are two kinds of stock options.

    I used to get incentive stock options. Once a year, I'd get a sheet of paper explaining that in one year's time, I would have the right to buy X shares at the price on the day the option was given to me. The idea was that if the company did really well and the stock price went up, I'd buy the stock.

    If the stock went up, I could buy the stock and keep it like any other stock I owned or I could do a same day sale. The spread (the difference between the sales price and the price I paid) was added to my W-2 as ordinary income.

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