What does it mean for a company to exercise options?
In: Economics
I assume you mean exercising *stock* options. “Exercising options” just means “doing something you’re able to do.”
Stock options are a benefit granted to employees of some businesses, wherein they offer to directly sell stock in the company at a pre-set price, which will generally be lower than the market price. When you “exercise your stock options,” you buy the stock.
Microsoft is selling at $412 a share on the market today, but a Microsoft employee may be given the option to purchase up to 1,000 shares at a fixed price of $400. This essentially amounts to a cash bonus of $12,000 since if the employee fully exercises their stock option, they will save $12,000 versus somebody who buys 1,000 shares on the market.
This is better for Microsoft than simply giving people a $12,000 signing bonus, because it encourages sale of their stock and ties the employee to the company as they have real ownership of it.
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