What You Need to Know About Some Vital Keys and Terms of NSO Stock Options

Employee Stock Options (ESOs) offer the option holder the right to buy a certain amount of company shares at a predetermined price for a specific period of time. It is classified into two parts that are- NSO (non-qualified stock options) and ISO (incentive stock options). Here, we will discuss NSO stock options.

NSO stock options are stock options which do not possess special treatment like those accorded to incentive stock options. As it is obvious from the name, non-qualified stock options represent an offer to the employee by the employer to purchase company stock at a price which tends to be generally below the current market price. Its key terms and conditions are mentioned below:

1. Grant date: The date on which the company grants an employee permission to buy a specific number of shares at a pre-determined price within a set period of time.
2. Exercise date: The date on which the employee exercises his or her right to buy the shares at the exercise price and effects a purchase transaction. These first two dates are those on which a taxable event occurs for NSOs.
3. Exercise price: The price at which the employee can buy the stock in the plan. This price is supposed to be lower than the market value, and companies usually set the price based upon a set discount formula from its current market price. However, it is possible for the stock price to go below the exercise price, at which options become worthless because no employee would ever want to buy the stock price above the existing market value.
4. Sale date: The second taxable event in the NSO process. This is the date on which the employee sells the stock.
5. Expiration date: The date on which the offer extended at the grant date to exercise the options terminates.
6. Bargain element: The amount of profit that an employee gets when they exercise their options. This amount equals the difference between the exercise value and the current market value.

The key terms which are important for NSO stock options are evident now. Before buying stock options, one should enlist the advantages which will be given to the buyer, such as- increased income, tax deductions, tax deferral, and improvement in employee’s tenure and morale.

When it comes to cashing out stock options, then the favorable situation is that an employee should hold the stocks until the price rises to a favorable price, then list the stocks for sale. But considering this only will not help you maximize your returns. There are a lot of other factors accompanying stock options that must be considered by the holder for a fruitful result.

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