Stock Options For Dummies

Confused by all the brouhaha surrounding stock options? Let expert Alan Simon demystify this often-confusing investment vehicle for you.

If you're like the majority of the estimated 12 million employees in the U.S. who have stock options as a key component to their compensation packages, you have a vague notion, at best, of how options work and what they can mean to your financial well being. What's the vesting schedule for your shares and how will their strike price be set? What type of stock option grant will you receive, an ISO (incentive stock option) or an NQSO (non-qualified stock option)? What tax rules apply to your option program? Your financial future could depend on your knowing the answers to these and other questions regarding your company's stock option plan.

Featuring clear explanations of how your stock options might make you money--or not--this friendly guide fills you in on what you need to know to:

• Understand different types of stock options

• Read and find traps in your stock option agreement

• Evaluate the pros and cons of company investment vehicles

• Assess vesting schedules and tax laws

• Tap Web resources

Simon demystifies the jargon, rules, and tax consequences of stock options. He provides a realistic picture of what to expect from your options, and he helps you see past the hype to understand what your employer is really offering. Important topics covered include:

• What you need to know before accepting a compensation package that includes options

• Developing a stock option philosophy and clear-cut goals

• Knowing whether you're being treated fairly by your company

• Making sense of the language of stock options agreements

• Getting a handle on key restrictions on how you exercise your options

• Stock option valuation

• Tax rules and how they apply to different types of options

• How stock options can be affected by changes at your company

Stock Options For Dummies is the only guide you'll need to get the most out of this important investment vehicle.

Auteur
Alan R. Simon, author of Data Warehousing For Dummies, is a manager at Deloitte Consulting. Alan has experienced every side of stock options in public and pre-IPO companies, large Fortune 500 corporations, and small consulting firms.

Contenu

Introduction 1

Why I Wrote This Book: The Lessons of 1999 and 2000 1

Who Needs to Read This Book? 3

How to Use This Book 3

How This Book Is Organized 4

Part I: The Fundamentals of Stock Options 4

Part II: Details, Details: What You Must Know

About Your Stock Options 5

Part III: Money! 5

Part IV: Pay Up! Taxes and Stock Options 6

Part V: Changes and Special Circumstances 6

Part VI: The Part of Tens 6

Icons Used in This Book 7

Part I: The Fundmentals of Stock Options 9

Chapter 1: Stock Options: What You

Need to Know Right Off the Bat 11

Understanding Stock Option Basics 11

Knowing what stock options are 12

Knowing how stock options work 13

Exercising Your Stock Option(s) 15

Understanding the Right Nature of Your Stock Options 19

Comparing Stock Options to Actual Shares of Stock 20

Granting Stock Options: Why Do Companies Do It? 21

Hard work equals great rewards 21

Building (or trying to build) a stable workforce 22

Diverting cash from salaries to other uses 23

Comparing the Two Main Types of Stock Options 24

Chapter 2: Taking Your Chances: Getting Rich or Going Broke 27

Making Lots of Money: The Upside to Stock Options 28

When Good Options Go Bad 30

The sad story of underwater stock options 31

Is getting in early the secret? 32

Stock Options as Golden Handcuffs 34

What are golden handcuffs? 34

Conspiracy theory 35

Why stock options go underwater 37

Reading the Oxygen Meter on Your Underwater Stock Options 38

Real companies versus fad companies 39

Realizing failure isn't just a fad 40

Chapter 3: Knowing What Kind of Stock Option Situation Is Best for You 43

Assessing Your Attitude: Entrepreneur, Investor, or Working Stiff? 43

The entrepreneurial approach to stock options 44

Stock options as an investment vehicle 47

Job security and a steady paycheck but with a kicker 48

Considering Your Personal Situation 49

The Two Different Types of Employment Situations 50

High-risk, high-reward situations 50

Risk-managed situations 50

Putting It All Together 51

Determining the Best Situation for You 52

The risk-reward balance and your share of the ownership pie 52

Considering the external environment and your personal qualifications 53

Chapter 4: The Big Guys and The Big Picture 57

Recognizing the Big Guys? 57

Board members 59

Identifying the big guys and watching their moves 60

Understanding Other Big Guy Investment Vehicles 60

Restricted stock 61

Warrants 62

Convertible debt 62

Knowing How Much of Your Company the Big Guys Own 63

The earliest stages of startup 63

After the first few rounds of investment 64

After going public 65

The Fortune 500 stage 66

The Friends and Family Stock Program 67

Part II: Details, Details: What You Must Know about Your Stock Options 71

Chapter 5: Deciphering the Legal Language of Stock Option Agreements 73

Knowing What an Employee Stock Option Agreement Is 73

Figuring Out What Kind of Stock Option(s) You Have: ISO or NQSO 74

Trudging Through the Details of Your Stock Option Agreements 75

The date of the agreement 76

The number of shares 77

What kind of stock 78

The strike price 79

The vesting schedule 80

Split adjustment clause 82

Knowing When Your Option Is Exercisable 84

Exercising your stock options 84

Conditions of employment 85

Termination provisions 86

Change of control clauses 87 Blackout periods 88</p&gt...