Stock Options

There is a lot of stock option software out there. Let’s give a quick stock option software reviews, with the understanding that you should FULLY research any given product before purchasing it. Additionally, if you have personally used this stock options software, and you would like to give us your review of its performance and functionality, we would be truly appreciative.

One of the most graphically intensive and impressive stock option programs available is Visual Options Analyzer (VOptions). At only $69.95, this piece of financial software is truly a steal. We’ve been using it for a little over two years, and I can proudly say that VOptions does everything that we want a stock option software to do, and then some. This options program is easy enough for a novice to use after an hour or so of practice, and it has enough features to keep any professional trader satisfied.

VOptions features: advanced charting; 32 built in stock options strategies; automatic and free options data download from the Chicago Board Options Exchange, American Stock Exchange, Philadelphia Stock Exchange, PCX or PSE Pacific Stock Exchange, and the International Securities Exchange; the capability of building your own option strategy; the ability to export directly into EXCEL.

For $69.95, it just doesn’t get any better than VOptions for tracking your stock options portfolio, in our opinions. We highly recommend it.

To go directly to the order page- ORDER VOPTIONS DIRECTLY FROM HERE!

To get more information on VOptions- LEARN MORE ABOUT VOPTIONS!

We will be reviewing many more stock option softwares very soon. Happy trading!

I learned the basics of trading stocks and stock options with the fantasy stock option trading game by a company called Wall Street Survivor. I can tell you from personal experience that there is absolutely no better way to learn to trade stock options than this. It’s fun, it teaches you the basics of trading investments, and you will come out of the program knowing a heck of a lot more about investing and trading than what you went into it with.

So how does the fantasy investment game work? Good question! Without getting into every little detail, I can tell you that you just sign up for free. Then you are given $100,000 in a fantasy investment account. Then you decide how you want to invest your money (stocks, bonds, stock options, futures, etc.), track your performance, and try to make as much as you can. You can buy or sell your assets at any time, and they give you a ton of free analysis tools to help you make decisions.

There is no way that any person should begin trading options, stocks, futures, or any other investment instrument without some good practice and knowledge. This free stock trading game will allow you to get the practice at absolutely no cost, and you are guaranteed to learn a lot about the financial markets in the process.

Even if you are a seasoned trader, this free option trading program can be a great asset. I’ve just recently signed up for a free trading account myself again to hone a thing or two in futures. Heck, for a free service (yes, it is absolutely FREE!) you can’t go wrong.

Lastly, the company that put this free stock option software together even awards high performers with free prizes. The last time I checked they were giving away $50,000. Don’t take my word for it though. Head on over to their site where you can read all of the specifics and sign up for a free account. I guarantee that you will have a lot of fun in the process. Simply follow the upcoming link to learn more about the free trading game: Traders Wanted - Play $50,000 Stock Trading Game

Happy trading!

What is an incentive stock option? Good question! Let’s define and illustrate the concept of incentive stock options as simply as we can.

Incentive stock options (also known as an “ISO”) are stock options that have reached tax requirements that entitle the buyer of the option to a benefit in his taxes. Incentive stock options are not assessed with a regular tax rate when they are granted and exercised. If they are held for a specified length of time, taxes on this incentive stock option are taxed as long term capital gains, rather than regular income. In other words, this form on an option allows you to treat any profits realized as capital gains at a low tax rate, rather than regular income at a much higher tax rate.

Let’s put this lengthy definition into a practical application. We’ll also add an explanation on the “timing requirement” for incentive stock options.

Let’s say that John works for Ace Plumbing Supply. Ace has granted John an employee stock option on January 1, 2004. John executes that employee stock option on January 2, 2005 by purchasing the shares at the agreed upon price. John then sells those shares of stock in Ace on January 3, 2006. John realizes a profit from the sale of his option of $100,000.

How will this profit of $100,000 be taxed? Will it be assessed as regular income (a high tax rate), or as long term capital gains (a comparably low tax rate)? To answer this we have to determine if this is an incentive stock option (ISO), or not. If it is an ISO, this profit is treated as a long term capital gain. If it is not, this profit is treated as regular income.

How do we determine if John’s profit from sale of his shares is an incentive stock option, or not? We must determine if the “holding period test” has been met. The holding period test is a two part test (you must meet both conditions for a qualified ISO) as follows:

1- Was there a period of at least two years between the grant date and the sale of the shares?

2- Was there a period of at least one year between the exercise date and the sale date of the shares?

Now let’s apply the holding period test to John’s scenario:

1- Was there a period of at least two years between the grant date and the sale of the shares? Yes! John was granted the employee stock option on January 1, 2004. He then sold the shares on January 3, 2006. There was more than 2 years between the grant and sale dates, so John passes the first part of the holding period test.

2- Was there a period of at least one year between the exercise date and the sale date of the shares? Yes! John exercised his options on January 2, 2005. He then sold the shares on January 3, 2006. There was more than 1 year between the option exercise date and the sale date. So John passes the second portion of the option holding period test.

As we can see, John will be able to treat his profit of $100,000 from this employee stock option as a long term capital gain when he pays his taxes, rather than regular income, thanks to the concept of incentive stock options. Congratulations John!

All of us dream of working for a company that is handing out employee stock options these days. Why? Because we’ve all heard of the thousands of young employees working for the dot com venture companies becoming instant millionaires (commonly called “dot cot millionaires”) when they cash in on their employee stock options. While most of us have certainly heard of employee stocks options, perhaps not all of us are quite sure exactly what they are. Let’s briefly explain “What are employee stock options?”, and illustrate this spin on an investment vehicle.

Simply put, an employee stock option is an option contract issued by a company to its employees as a form of compensation. Please see “what are stock options” for a definition of that term. In other words, a company usually issues options for their employees as a mechanism of recruiting talent without immediately expending any capital.

Perhaps the best way to explain this is by a brief illustration:

Let’s say that Alpha company wants to recruit a new CEO to run it’s hot internet division that has just recently begun operations. They are willing to pay a salary of $200,000 for the first year. They find Bob that just happens to be the perfect candidate for the job. The only problem is that Bob is not willing to work for less than $300,000 per year. How can these parties come to terms and strike a deal that is beneficial for each?

How about an employee stock option! Alpha’s stock is currently trading for $10 per share. Bob knows that this young company is set to explode over the coming years. Alpha and Bob can enter into an agreement (an employee stock option, “ESO”) whereby Alpha agrees to grant Bob an option to purchase 10,000 shares of Alpha, executable after 1 year of service, for a price of $10 per share.

If Bob and the company do a great job in the first year, Bob knows that the stock price could easily triple to $30 per share. If it does, Bob could purchase the 10,000 shares of Alpha and sale them after one year for a profit of $200,000.

Utilizing employee stock options Bob and Alpha were able to meet both of their needs. Alpha hired a great employee for less than he should be paid (at least as far as initial cash outlay goes). Bob grabbed an opportunity to earn more than he should be paid, if the stock increases as he expects it to. It’s a win-win for both parties!

Hopefully this simple definition and explanation of employee stock options explains the concept well enough. If you have any questions, thoughts, additions, or comments, please feel free to fire away. We sincerely thank  you for visiting and wish you the very best!

We are commonly asked, “What are stock options?” Being in the financial “game” for so long, we forget that the majority of folks out there really don’t understand investment terms, much less fairly complicated terms and instruments such as stock options. With that in mind, here is a brief explanation and description of what stock options are. If you would like to add to this simplified definition, please feel free to do so.

The simplest stock option definition is simply that it gives the holder the right to buy or sell stock at a specified price by a specific date. In other words, the person that purchases a stock option may choose to purchase or sell the underlying instrument (the “stock” itself) in the future, for an amount that is determined when the option is granted by the seller.

Let’s put this working definition into a practical explanation. Pretend that Mary owns 100 shares of Google stock. Let’s say that Google’s stock is currently valued at $500 a share. Now Ben approaches approaches Mary and inquires about entering into an options contract for her Google stock. They both agree that Ben will have 10 days to purchase all of Mary’s shares in Google for $500 each. For entering into this contract, Ben immediately pays Mary $1 per share ($100).

If 10 days go by and Ben does not execute upon the agreement, this stock option contract will expire and Mary gets to keep her Google shares, along with the $100 profit.

If they are in the US, Ben can execute the options contract at any time before it expires by simply purchasing the shares or selling them. If they are in Europe, Ben can only execute upon the agreement on the 10th day.

Why would Ben want to purchase or sell the Google stocks? Because Google’s stock prices went up! Let’s say that on the 8th day Google’s shares were trading for $600. Ben could immediately act upon the stock options agreement and sell all of the shares on the market, which would yield him a return of $100 per share (minus any fees).

Why would Ben not want to purchase or sell the shares of Google? Because the price has fallen! Let’s say that the value of Google stock has fallen to $400 on the open market. If Ben acted upon the stock option he would be a fool because he would have to pay Mary $500 a share, while he could purchase the same stocks on the open market for only $400! In this example, Ben would just let the option expire and count the $100 cost as a sunken expense.

Hopefully this answers “What are stock options?” for you. We realize that it is simplistic, but we all need to start from somewhere. We gladly welcome any thoughts, additions, questions, or comments that you may have. Thank you very much for visiting us today.