Stock option grants and stock grants are two forms of compensation often offered as incentives in addition to base salary offered to a newly hired employee. This practice is especially common in the high tech industry. Stock options are contracts that allow you to buy or sell specific amount of a particular stock at a certain price within a set period of time. The set price is called the strike price. When you (the stock option holder) make use of your right to buy/sell stock according to the terms of the option, you are exercising the option. Call options are options giving you the right to buy stock. Put options are options giving you the right to sell stock. Employers grant call options to employees. Let's take an example: Let's say you are hired by Google and they offer you options to buy 100 shares of Google stock at $400 within the next 5 years. This stock option gives you the right to buy 100 shares of Google stock at exactly $400 any time within the next 5 years. Let's say it's after four years now. Suppose Google stock is at $300 now, now your options are worthless, because you could buy Google stock in the market for $300, much less than the $400 price offered by your stock option. Now suppose Google stock is at $500 now, then if you exercise your option, you could buy 100 shares at $400. Then you can turn around and sell it on the stock market for the current price of $500, making a $100*100=$10000 profit. So the stock option is basically not worth anything if currently the stock price is lower than your option strike price. But as long as your option has not expired, it's possible that the stock price could go above your strike price and make your stock options worth something.Stock grants are simpler to understand. The employer gives you some shares of stock for free. So let's use the Google example again. Suppose Google hired you and gave you 100 shares in a stock grant. Now you own 100 shares of Google stock. At anytime, you could sell that stock for whatever price it is trading at on the stock market.Stock option and stock grants are usually offered on terms called vesting. That means that you are not given the full amount of options or stock right away, but rather the employer gives it to you over time. A common vesting schedule is vesting over four years, so that you get 1/4 of the stock or options offered after the first, second, third, and fourth year you have been at the company. This is done to give employees an incentive to stay at the company.
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