Annual Stock Option Grants Calculator
This Annual Stock Option Grants Calculator can help you project how the value of the stock options provided by your employer may grow over time. To use it, you'll need the current price of the stock, how much new stock you're given per year, the projected rate of appreciation, and the length of time over which you wish to estimate the growth in value of your employee stock holdings. The calculator will take these figures into consideration and produce a graph of your stock options' appreciation in value over time, as well as a table showing annual contributions and the annual appreciation in value of the stock itself and of your account.
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Annual Stock Option Grants Inputs:
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Stock Options Final Year Values
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After 15 years at 7% options are worth $138
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Current stock price
Current stock price. For this calculator, the current stock price is assumed to be the strike price. The strike price is the stock price that your options were issued at. The underlying stock price must exceed the strike price for your options to have any value.
Stock appreciates at
This is the annual rate of return you expect from the stock underlying your options. Thanks to the leveraged nature of your stock options, once the underlying stock value has exceeded your strike price, the value of your options will increase at an accelerated rate. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2018, had an annual compounded rate of return of 12.1%, including reinvestment of dividends. From January 1, 1970 to December 31st 2018, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.2% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Annual stock option grant
This is the number of stock options you receive each year. The strike price for each year will be calculated as the projected stock price.
Number of years
The number of years you expect to hold these options. This can be any number from three to twenty-five.
Annual Stock Option Grants Calculator Overview
One of the ways that companies reward their employees for the contributions they make to the business is by offering them annual stock option grants. These are ownership shares in the company itself given to workers as part of their compensation. It not only rewards them financially, but gives them a stake in the company's success and allows them to benefit from the gains they have helped produce.
While a single year's stock option grant may not seem like a lot of money, as stock options are accumulated and matured their value increases dramatically. If your company offers annual stock option grants, or if you are an employer who is considering offering this employment perk to your employees, then you should see how the value of annual stock option grants can improve over the years.
Of course, employee stock options are only valuable if the company prospers and the stock increases in value. If the company falls on hard times or even goes out of business, the stock can fall in value or even become worthless. For that reason, you don't want to have your entire retirement fund tied up in your company's stock.
For this reason, many employees choose to cash out part of their employee stock and transfer it to other investments, so as to diversify their holdings and protect themselves against a downturn in the company stock. However, most companies require that you hold your stock option grants for a certain length of time before you can cash them out.
Using the Annual Stock Option Grants Calculator
The calculator assumes that you are just beginning to receive stock option grants from your company. You can still use it if you've already been receiving stock options for a few years, but you'll need to make some adjustments. See below.
Enter the following:
- The current stock price is the per-share price of the stock the first year you began receiving stock options. The calculator assumes the current price is the strike price or the value of the stock when it was issued to you. If you have been receiving stock for several years, enter the original stock price at the time you began receiving stock options.
- The stock option grant is the number of shares you are given each year.
- Enter your best estimate for the rate the stock will appreciate at. Click on the phrase "stock appreciates at" for historical guidance on stock appreciation rates.
- Enter the number of years over which you wish to project stock performance.
The calculator will show the total number of shares you will receive over that span of time and the projected average strike price – that is, the average value of the shares at the time you receive them.
The calculator will show the projected growth in the price per share of your options over the length of time chosen, as well as the projected growth in value of your entire portfolio. A more detailed breakdown may be seen by using the "View Report" button.
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