Stock Option Ownership
Are you a woman who has been granted stock options by your company? Do you understand how they work? I can help! Let’s start slowly.
When you are granted a stock option, you must first understand that this gives you the OPTION (or the right) to purchase stock at some point in the future, at a specified price. This is an option, but not an obligation, and there are cases where you may not want to exercise your right.
When you are granted stock options, there is typically a stock option agreement that accompanies the grant. The agreement should indicate 5 important stock option grant aspects that you should pay close attention to:
Strike Price = Exercise Price = Option Price
# shares
Vesting schedule
Expiration date
Details (if you resign/fired, violate terms of agreement, etc).
Often, your grants appear electronically - you are notified via email, and may have to ‘click to accept,’ at which point they will appear in an online account. However, there is typically an official ‘grant’ document that accompanies the grant. You may have to access it via PDF electronically. If you cannot figure this out, go to HR and ask how to grab a copy of the grant for your files and advisor.
I recommend that you review each grant document and be sure you have a way to keep track of important dates. Ideally, your exercise strategy should fit into your overall financial plan, and specific goals. At Green Bee Advisory, our financial planning tool allows us to keep track of your options for you, as well as offers you a personal financial portal where you can see every aspect of your financial life updated daily in one place.
And lastly, it is important to have an opinion as to the direction of the company stock, as well as to understand that not all options will create the value you are hoping for. Some will create much more, and some may expire worthless.
🐝 FAQ: Stock Option Ownership for High Earners
What exactly is a stock option, and how do I “own” it?
A stock option gives you the right (but not the obligation) to buy shares of your company at a fixed **exercise (strike) price**. You don’t “own” shares until you exercise the option and potentially sell. The upside is when the share price exceeds your strike price. (See more in “Managing Stock-Based Compensation in Private Companies” by J.P. Morgan) :contentReference[oaicite:0]{index=0}
What’s the difference between ISOs and NSOs for high income earners?
ISOs (Incentive Stock Options) may offer favorable tax treatment (if holding period requirements met), whereas NSOs (Non-Qualified Stock Options) result in ordinary income tax on the “spread” at exercise. The right choice depends on your income, timing, and ability to hold long enough.
When should I exercise my stock options?
Timing depends on tax brackets, company valuation, liquidity needs, and risk tolerance. Early exercise can reduce tax cost if share value is low, but carries risk. You’ll want to model the tradeoffs, especially around AMT and holding requirements.
What risks should I watch out for with private company options?
In a private company, options may lack liquidity (you might not be able to sell). The valuation (409A) may change, dilution may erode value, and if the company never exits (IPO or acquisition), the options may be worthless. Cash needed to exercise + holding costs are real risks. :contentReference[oaicite:1]{index=1}
How do I calculate the potential value of my options?
You look at: (current share value − strike price) × number of shares. But because private shares may lack market pricing, you often use the most recent valuation (like a 409A or financing round) as a proxy. Always factor in dilution, taxes, and whether you can actually sell. :contentReference[oaicite:2]{index=2}
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