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> What's the point of stock options? I know it's hip with the kids to be cynical these days, but surely you jest... > It's a piece of paper The legal term is

by deelowe 10y ago

> What's the point of stock options? I know it's hip with the kids to be cynical these days, but surely you jest... > It's a piece of paper The legal term is "contract." > This price can be higher or lower, you cannot know beforehand. Yep. That's kind of the point. Risk versus reward and all that. > It's not a replacement for a salary or a stake in the company. Not directly, no. Neither is health insurance, 401k, company provided meals or other benefits, but all of these things are perceived by most to have at least some marginal value. > I was handed out stock options myself for a company in the past but it wasn't worth it to use them. C'est la vie > I mean, unless you have options from a unicorn, those don't amount to much. Or, ya know, you end up with a company that has good growth potential and those options work out in your favor, which is actually typically the case btw. On average, the market has improved over time. I'm guessing you were burned either b/c the company was high risk (which means you had the potential to do VERY well conversely) or you were hit by the downturn which also affected almost all stock, so not really related to options in that case. > I have this impression that some misrepresent options with stock Then some are idiots for agreeing to something they don't understand.

cm3 10y ago
> > What's the point of stock options? > > I know it's hip with the kids to be cynical these days, but surely you jest... I've seen so many startups' career pages mention stock options as noteworthy alongside perks. Stock options are like a reservation at a poker table where you're allowed to join the game. > agreeing to something they don't understand it's more likely the bling of a startup overshadowing everything and that it's mostly less experienced and young people.
ryanSrich 10y ago
I agree with everything you said except for this part: > "Not directly, no. Neither is health insurance, 401k, company provided meals or other benefits, but all of these things are perceived by most to have at least some marginal value." Stock options are, 99% of the time, worth $0. Perks, benefits, retirement options, all have intrinsic monetary value.
- abalone 10y ago
  > Stock options are, 99% of the time, worth $0. They are also, 1% of the time, worth >$100K. Some people have a tough time valuing volatile assets and end up making statements like this.. "they're not really worth anything" or "treat them like they're $0". But it's utterly wrong to say they have no intrinsic monetary value. It's more correct to call them volatile assets -- or even more correctly, a risk-free (in terms of capital) option to purchase a volatile asset.
- rconti 10y ago
  In a startup, you may be right, though I suspect you chose 99% for hyperbole. Maybe it's more likely 80% of the time or 70% or 98.7%. In an existing public company, as someone pointed out, the value of the company should be captured by the stock price, according to the efficient market hypothesis. As such, if the price is just as likely to go down as to go up, this should mean that stock options are merely worthless 50% of the time. Before you get into your ability to choose the sale date (subject to trading windows). So really, unless your public company ONLY goes down from the date you start (excepting really weird scenarios where it goes up, but is always negative relative to your strike price during trading windows), you stand to make money from your options. Maybe not much, but something. And you can't LOSE money from them, unless you do something stupid related to taxes, or something stupid like buy-and-hold. (buy-and-hold for certain values of 'stupid'; I actually did this once in order to swing a lower tax rate and it happened to work, but I could have lost my proverbial shirt).
  - gohrt 10y ago
    > efficient market hypothesis absolutely does not apply in private-company stock.
    - rconti 10y ago
      Absolutely. That's why I only mentioned it in reference to an existing public company. As I mentioned, in a private company, it could well be possible that 99% or 97% or whatever of stock options prove to be worthless.
ta9090 10y ago
> good growth potential and those options work out in your favor, which is actually typically the case Typically the case? I'll wager that greater than 70% of startup employee options never pay out.
- cm3 10y ago
  Or have them taken back if they leave or get fired.
- deelowe 10y ago
  If you're going to limit the discussion to startups (I did not), then we need to have a different discussion. I imagine all Facebook employees with an employee number less than #1000 are quite happy with their options. As with all things investing related, risk is proportional to reward. So, those 70% that aren't paying off are offsetting the 30% that are paying off massively. If you don't want to take this risk, choose a different industry. Traditional corporations issue options all the time that pay dividends that consistently net positive value. You may only get a few hundred/thousand per year, but you can depend (somewhat) on the income they generate.
  - vacri 10y ago
    "30% pay out" is not the same as "30% pay out massively"
    - deelowe 10y ago
      You misspelled pedantic.
- LoSboccacc 10y ago
  even less than that. if 1 in 10 startups survives the first year and 1 in 100 goes to ipo, stock options are just a trick to underpay engineers. now, if one really is a 'key player' and a 'cornerstone', then equity is where the game's at.
- icedchai 10y ago

by deelowe 10y ago

cm3 10y ago

> > What's the point of stock options? > > I know it's hip with the kids to be cynical these days, but surely you jest... I've seen so many startups' career pages mention stock options as noteworthy alongside perks. Stock options are like a reservation at a poker table where you're allowed to join the game. > agreeing to something they don't understand it's more likely the bling of a startup overshadowing everything and that it's mostly less experienced and young people.

ryanSrich 10y ago

I agree with everything you said except for this part: > "Not directly, no. Neither is health insurance, 401k, company provided meals or other benefits, but all of these things are perceived by most to have at least some marginal value." Stock options are, 99% of the time, worth $0. Perks, benefits, retirement options, all have intrinsic monetary value.

abalone 10y ago
> Stock options are, 99% of the time, worth $0. They are also, 1% of the time, worth >$100K. Some people have a tough time valuing volatile assets and end up making statements like this.. "they're not really worth anything" or "treat them like they're $0". But it's utterly wrong to say they have no intrinsic monetary value. It's more correct to call them volatile assets -- or even more correctly, a risk-free (in terms of capital) option to purchase a volatile asset.
rconti 10y ago
In a startup, you may be right, though I suspect you chose 99% for hyperbole. Maybe it's more likely 80% of the time or 70% or 98.7%. In an existing public company, as someone pointed out, the value of the company should be captured by the stock price, according to the efficient market hypothesis. As such, if the price is just as likely to go down as to go up, this should mean that stock options are merely worthless 50% of the time. Before you get into your ability to choose the sale date (subject to trading windows). So really, unless your public company ONLY goes down from the date you start (excepting really weird scenarios where it goes up, but is always negative relative to your strike price during trading windows), you stand to make money from your options. Maybe not much, but something. And you can't LOSE money from them, unless you do something stupid related to taxes, or something stupid like buy-and-hold. (buy-and-hold for certain values of 'stupid'; I actually did this once in order to swing a lower tax rate and it happened to work, but I could have lost my proverbial shirt).
- gohrt 10y ago
  > efficient market hypothesis absolutely does not apply in private-company stock.
  - rconti 10y ago
    Absolutely. That's why I only mentioned it in reference to an existing public company. As I mentioned, in a private company, it could well be possible that 99% or 97% or whatever of stock options prove to be worthless.

ta9090 10y ago

> good growth potential and those options work out in your favor, which is actually typically the case Typically the case? I'll wager that greater than 70% of startup employee options never pay out.

cm3 10y ago
Or have them taken back if they leave or get fired.
deelowe 10y ago
If you're going to limit the discussion to startups (I did not), then we need to have a different discussion. I imagine all Facebook employees with an employee number less than #1000 are quite happy with their options. As with all things investing related, risk is proportional to reward. So, those 70% that aren't paying off are offsetting the 30% that are paying off massively. If you don't want to take this risk, choose a different industry. Traditional corporations issue options all the time that pay dividends that consistently net positive value. You may only get a few hundred/thousand per year, but you can depend (somewhat) on the income they generate.
- vacri 10y ago
  "30% pay out" is not the same as "30% pay out massively"
  - deelowe 10y ago
    You misspelled pedantic.
LoSboccacc 10y ago
even less than that. if 1 in 10 startups survives the first year and 1 in 100 goes to ipo, stock options are just a trick to underpay engineers. now, if one really is a 'key player' and a 'cornerstone', then equity is where the game's at.
icedchai 10y ago