- Current stock price
- Current stock price. If this price is above your option strike price, you are already in the money. If it is currently below the option strike price, your options will not have any value until it exceeds the strike price.
- Stock appreciation
- 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 dependant on the type of investments you select. From January 1970 to December 2006, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.5% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are 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 additional sales charges and fees that funds may charge.
- Number of options
- This is the number of stock options you were granted.
- 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.
- Number of years
- The number of years you expect to hold these options. This can be any number from one to twenty-five.
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