Stock options are defined as offer made by firms to employee to purchase shares of the company. These might be the incentives distributed among the employees of the company. An employee stock options aim to motivate employees to do better in the interest of the company. A stock option is totally different from normal stock options that are traded at National Stock Exchange. Stock Options Trading Strategies, definitions, signals and techniques will be explained in detail.
Facts that must be considered before planing Stock options:
- Company’s vision
- Employees attitudes
- Long term objectives of the company
- Share price of the company
Why corporates and firms opt for stock options
- Stock options trading can serve as salary buffers to keep workers from leaving their firms when salaries or other benefits start to rise in the labor market around them.
- stock options are non-standardized calls that are issued as a private contract between the firm and employee
- Many firms use stock options to keep employees motivated for work.
- Small firms are using stock options to attract more employees.
Stock options trading is the best way to negotiate with employees by offering stock options in the company. For example a firm has three ways it can tackle its compensation strategy.
- Company may choose to pay the costs of renegotiating pay every time an employee gets an outside offer
- Company may write employment contracts that include salary and stock options
- Company may make some amount of pay contingent on firm profits but lower the employee’s risk premium by fixing his total pay above his market wage.
Rewarding employees when stock goes up ensures that everyone is striving for the same goals. There is a big difference between an option and the ownership of the stock. If the stock goes down, the holder of an option would lose the opportunity for an incentives, but wouldn’t feel the same pain as the owner of the stock.