How does this stock option sound?

[Guest vijaykadam]

Hi,

I recently received an offer from a company. The offer mentions that I have been granted an option to purchase 3000 shares of this company. I don't know much about stock options, does any one know what are the usual stock options offered by some good companies for the position of senior engineer. Does a figure of 3000 sound OK?

The offer indicates a Salary of $75000/-, sign on bonus of $7000/-, all relocation expenses will be paid.

Does this offer sound OK.

Please respond with your opinion.

Thanks

Vijay

[MGB]

What is the exercise price? What is the current price of the stock? What are the prospects for the future price of the stock? How long are the options good for?

If the exercise price is $X and the price is well less than $X and there is very little possibility that it will go up much, it is pretty much a worthless deal.

On the other hand, if the exercise is, say, $10, and the price is $9, and you expect it to go to $20 or $30, then you could make good money on this.

Multiply the exercise price by the shares...can you afford to buy that?

[Guest Yvonne Bonitatibus]

Vijay:

All companies offer different ranges for stock options -- depending on the company, the number of options available and the price of the options. However, for your position, 3,000 would be the typical size our company would offer to a software or hardware engineer.

You need to pay attention to whether the options are NQ (Non-Qualified options) or ISO (Incentive Stock Options). The major difference that affects you is how the options are taxed. If they are ISO options, you will not be taxed on their value if you buy them. However, if they are NQ's, you would be taxed on the value at the point that you purchase them. There is an option with stock options to do what is called a cashless exercise or a same/day sale -- which means you buy and sell the option on the same day. With this method you do not have to come up with any money out of your pocket -- you will receive from a broker a check for the amount of the gain minus taxes and a brokerage fee. Keep in mind that if you do make a cashless transaction that the taxes depending on where you live can be quite a considerable portion of the gain (options in a cashless exercise are processed using 28% federal tax and then all other applicable taxes).

Hope this helps a little.

[IRC401]

A client once told me that they intentionally have a low per share stock price because the engineers all want to receive a "gazillion" options. Apparently to many employees a 100,000 options sounds better than a 100 options, even if the 100 options are worth more.