Self-explanatory. I’m clueless. I just want to know how much money I’m going to be getting every month in total for my job.
In: Economics
#ELI5
“If you come work for us at KangyCo, we can only offer you $70,000 a year. I know that’s less than you wanted, but you know what? We can offer you more stuff”.
“Like what?”
“Well, we’ll give you a company car, and we’ll give you an extra week of vacation, and we’ll match your retirement contributions.”
“Nope, that’s not enough, what more can you offer me?”
“Ummm. We can offer you stock options!”
So **stock options** are a perk, it’s kind of like a bonus you get, that’s not money. A bonus, a perk, like an extra week vacation, or a company car.
What ARE stock options?
**KangyCo** has stock. Any person can buy/sell KangyCo stock anytime they wish. If you think the stock price will go up, you buy it now, at a low price, and sell it later at a high price. Or vice versa.
So … stock is a thing.
But you *also work* for KangyCo. And they gave you stock options. So you’re special.
You are allowed to say, “I want to buy some KangyCo stock next June, but I want to pay today’s price, not whatever price it is next June.”
Nobody else gets that choice. If everyone else wants to buy KangyCo stock next June, they pay whatever the price is next June.
But you, you’re special, you can **OPT** (as in, option) to pay today’s price on KangyCo stock next June … which might actually be lower than the actual price next June!
(It’s like saying you are allowed to buy a Samsung HDTV next year, but pay whatever price it is today.)
So if today’s price is $10 a share…
And next June the price is $18 a share…
You can buy it, next June, for only $10 a share, and you see how you benefit from that, right? You paid a lot less for a stock than the current value!
(Like buying a Samsung HDTV next year, but paying last year’s price!)
So they see that as a perk, like a company car, like an extra week vacation. Being allowed to buy that stock at a deep discount next June, is a perk. They offer it to you, as a lure so that you will work for them. Just like a company car.
“But whomp, what if the price next June is LOWER than $10 a share?”
Well, you don’t HAVE to buy it at all. It’s an *option*. A *stock option*. You can say “No thanks”, and just not buy it.
This is just scratching the surface, there can be tons more details about this, tons more “well, in *this* situation, you can do this, and in *this other* situation you can do that” … but the BASICS are like I laid out above.
Latest Answers