Basics

Do you know when your options or restricted stock vest, or when your options expire? Are you familiar with the basic terminology? What option-exercise methods can you use?

Basics provides core knowledge about stock options and other types of stock grant. This overview page presents selected articles and FAQs from the subtopics in this section. For the full content of a subtopic, click on a link in the upper left.

Test and improve your knowledge with our Basics Of Stock Grants quiz and its study guide in the answer key.

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Articles   (Jump to FAQs)

How To Avoid The Most Common Stock Option Mistakes (Part 1) 

Beth Walker
Avoid the mistakes others made during prior boom markets and downturns. Common mistakes arise in nine different situations, including termination, mergers, financial planning, term expiration, and life events.

Stock Option Valuation And Your Exercise Strategy 

Samuel D. Swisher
When should you exercise nonqualified stock options? You need a decision-making process that removes guesswork and emotions. Otherwise, you're likely to exercise too soon or too late.

How To Avoid The Most Common Stock Option Mistakes (Part 2) 

Beth Walker
Avoid the errors that many people have made, including mistakes that stem from major life events and taxes.

What Are My Stock Options Worth? 

Richard Friedman
Your company just gave you a stock option grant, or your existing options are underwater. You wonder: "What are my stock options worth? Are they worth anything at all?" Learn about different valuation methods, including Black-Scholes.

Stock Option Fundamentals (Part 1): Know Your Goals And Terms 

Marilyn Renninger
Stock options aren't just for the folks on mahogany row any more. But turning stock options into the real green stuff takes some know-how. You need to know certain features of your grant to decide when to exercise your options and sell the stock.

How Does Your Company's Stock Plan Compare?
(Part 1) 

Kate Victory
Can't find comparative data on stock option and restricted stock grants? Read the results of surveys, including data on approaches to vesting, exercise, and underwater stock options.

Stock Option Fundamentals (Part 3): Income Taxes And Withholding 

Marilyn Renninger
UPDATED! Here's some advice for financial fitness: take stock of taxes before you exercise! When and how you exercise your stock options can have a major impact on how much tax and which taxes you'll pay.

Stock Option Terms: What You Can Expect 

Richard Friedman
UPDATED! Get a sense of what you should, and should not, expect in the terms of your stock option grant. This survey of 300 companies in 2007 looks at trends in vesting schedules, post-termination exercise rules, and other plan features (includes some details on restricted stock grants).

Restricted Stock Versus Stock Options: Making A Rational Choice (Part 1) 

Alan B. Ungar
In a growing trend, your company may let you choose between stock options and restricted stock. Which is better for you? Learn techniques to analyze your financial situation and goals so that you can make the right choice.

How Does Your Company's Stock Plan Compare?
(Part 2) 

Kate Victory
UPDATED! Finding comparative data on stock option and restricted stock grants is difficult. Here we provide survey data on grant guidelines, expiration provisions, job termination exercise rules, and M&A.

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FAQs   (Jump to articles)

What is a vesting schedule? 

A vesting schedule dictates when you may exercise your stock options or when the forfeiture restrictions lapse on restricted stock. A schedule is time-based if you must...

How is my stock grant's exercise price set? 

The full board of directors, the compensation committee, or an executive with expressly delegated authority...

Why is vesting important to me? 

Unless you complete the required service period of work at your company or reach the performance target...

How is fair market value (FMV) determined for setting my exercise price? What are common company practices? 

In most cases, your exercise price for stock options is...

What is a typical vesting schedule? 

Graded vesting is more common than cliff vesting...

How are vesting schedules established? 

Vesting schedules are either established in advance by the board of directors when it approves the...

Other than paying the exercise price, what else must I do to exercise an option? 

The specific steps vary among companies. You usually first need to make an irrevocable election to exercise...

If my options are vested and have not expired or been forfeited, can my company prevent me from exercising them? 

Perhaps. Your stock plan or grant agreement may provide that the company can refuse to allow exercises if...

Are there different types of vesting schedules? Which are most common? 

Yes. Vesting schedules provide for either "cliff" vesting or "graded" vesting...

Is my employer required by law to give me choices in how I exercise my options? What are the most common methods? 

No. Your company has full discretion...

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