An employee stock option gives an employee the right to buy their employer’s stock at a pre-set price within a certain period of time. The holder of the option can choose not to exercise their right, which is why the holder has the “option” to buy the stock.
Employees of a company may be given “options” to purchase company stock at a price and time specified by the employer. Employee stock options generally are provided as a hiring incentive or as part of an employee’s compensation. An employer can allow options to vest all at once or over a period of time – this is known as the vesting period.
When or Whether to Exercise Your Stock Options According to a Los Angeles Securities Lawyer
Knowing when (and whether) to exercise your stock options can be complicated. If the exercise price of the stock option is below the stock’s current market value, then the stock options are said to be “in the money” and would produce an immediate profit when the options are exercised. Of course, after purchasing the shares the company could go out business or the stock’s price could decline for other reasons. As a result, many employees choose to exercise their stock options and immediately sell the shares to realize a profit and to eliminate the risks of owning the stock. Employers may pressure employees not to sell shares that they have purchased. Continuing to hold a large stock position, which can comprise a significant portion of an employee’s savings, can expose the employee to significant risk of loss. If an employee chooses to continue to hold a large number of shares of his employer’s stock there are investment strategies that can be employed in an effort to protect a large stock position.
Make sure you are fully aware of both your rights and the risks involved when deciding whether to exercise your employee stock options. There are tax consequences to consider and investment diversification and risk protection strategies for which employees should seek guidance when contemplating what to do with their employee stock options.
Call a Los Angeles Securities Lawyer Today
If you suffered significant losses relating to your employee stock options or stocks purchased after exercising your stock options you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles securities lawyer today for a consultation to discuss your rights and options.