First off, congrats! You are officially a stockholder! Wahoo!
Not feeling fantastic yet? It’s probably because the lingo with stock options is absurdly complicated. For no.damn.reason. So, we’ve simplified it. (It's what we do.)
Today, we’ll cover the most common stock options, and answer the 2 main questions floating around in your head: My company gave me shares. What the heck do you own? And what should you do with it?
This one can feel a little bittersweet.
You get a certain number of shares of company stock (for free—yay!)
BUT you don’t own them until a certain date. Plus, you can’t sell them until a future date to get actual cash money.
This is a way for the company to keep you around as long as possible.
You just got a bonus, that could be worth more or less in the future, that locks you into staying at that company, but you have nothing to show for it today. Nervous, yet? Us too.
MYTH: RSUs are stock “options”.
TRUTH: RSUs are stock “units”, not stock options.
You already “pre-own” RSUs, so you don’t get the option to buy these stock units at a later date (in fact, you don’t have to buy them at all, since your company gives them to you).
The catch? You gotta wait a little while before you get full ownership of these stocks, so you can’t cash in on dividends, or sell them for money until the allotted time has passed.
Ok, listen up: stock options should not be confused with stock bonuses.
Stock options are not a freebie. You just got an option to make money one day in the future.
But what do we know about money? You have to spend some, to make some, right? The same is true here.
Your company is giving you the right to buy their stock at a specific, locked-in price in the future.
This way, you can follow their stock price, and when you see it go up and up and up, you can get in on the investing game at a deep discount.
It's all theoretical and hypothetical, and only a good idea if your company's stock price goes up. If their stock price goes down, your options are worth nothing ☹
MYTH: My company is gonna tell me what to do with these and when.
TRUTH: Nope! And they probably want you to forget you even have these, because STOCK OPTIONS CAN EXPIRE IF YOU DON’T TAKE ACTION. Please, write the vesting dates into your calendar and cash in before that happens!
Same exact thing as an ISO, except you get better tax treatment. You only pay taxes on a portion of your profits.
The gal who made $75k in the exercise above? If she had NSOs instead of ISOs, she would pay much less in taxes. And that’s always great news! ;)
Easy way to remember the difference: Non-qualified = Not-as-taxable.
MYTH: these are worth a lot of money when they are given to you
TRUTH: not necessarily… These puppies could cost you a bundle to buy, and they’re only worth $$ if the company's stock price keeps going up.
Pay close attention. It could be free money one day, LOTS of money if your company does well, and you could use the extra boost to your net worth.
Ultimately, your decision depends on how much you trust your company to do well in the future, and how long you plan on sticking around.
You might wanna add your company's stock ticker to your Apple stocks and check their market price once in a while. Or, set a calendar reminder for yourself to have a date with your money once a month. Wine and roses included. Afterall, even your stocks deserve some lovin’ ;)
Ready to make smart money moves? Start with the money maker quiz
Want more money #inspo? Follow us on Insta @startwithapenny
Penny Finance may earn an affiliate commission if you purchase a partner product or service.take me to penny