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by Peaches on June 16th, 2008

Peaches

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What, exactly, are "stock options" and how do they work? Are they very risky?

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  • by Im Alec has abandoned this account on June 16th, 2008

    Im Alec has abandoned this account

    A stock option is when a company gives someone, usually an employee, the right (option) to buy some of the companies stock at a future data, but at a price set at the time the option is given. The idea is that, since the company's stock is expected to rise, in part due to the employees efforts, by the time the option matures and can be exercised, the employee will be buying below the market price and can make an instant profit. Because they are options, i.e. you do not have to buy them, they offer no risk for the employee. On the other hand, if the stock price does not rise as expected, they are worthless. So a stock option is a win-only offer, but not a certain win.

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