1. What is an option?
Option, also known as option, is a derivative financial instrument based on futures. Option is essentially a contract, which stipulates that the option holder has the right to exercise some behavior in the future (or for a period of time) (such as buying equity at an agreed price and selling goods at an agreed price). Whether to exercise this power depends on the option holder.
When the company grants options, it also stipulates the curing and exercise methods of options. When a general company grants an option, it will begin to solidify after 12 months, and the solidified option can be exercised. If you want to get income directly, you can exercise it in a non-cash way.
For example, you can exercise 50% in the first year, depending on what kind of exercise the company allows you to do. If it is a non-cash exercise, you can directly get income and get cash. If it is a cash exercise, the company will eventually get the stock, and the company will also have relevant regulations on the stock trading after the exercise. General companies allow employees to trade during the window period. Non-window period, that is, the exercise prohibition period, prohibits employees from trading stocks acquired by options for the second time.
2. Employee incentive options and equity
Option incentives are often seen in many Internet companies and startups.
Employee option incentive mainly refers to the right of employees to freely purchase (exercise) shares of the company at the price (exercise price) and quantity (quota) specified at the time of grant in the next few years. The grantee may use or waive this right.
If the company's share price rises when employees exercise their rights, then employees can get the difference between the market price and the exercise price. However, if the company's stock falls, employees can give up their exercise rights and avoid losses. Only after exercising the rights can the employee's options be converted into equity.