Company Stock Options

Are Company Stock Options a Good Buy?

Many companies offer stock options as a part of their compensation package. But are these options a good buy? Stock options are a sort of promissory note. They allow an employee to purchase the company’s stock for a particular price. Usually there is a specified grace period. The employee is allowed to buy the stock at their option price, but they cannot sell it until the grace period is over.

Often, this gives the employee the opportunity to buy the company’s stock at a discounted price. Sounds like a great deal right? Not always. There have been cases where employee’s retirement packages were heavily invested in the company’s stock. When the company’s stock took a nose-dive, these employees were left with very little in their retirement portfolio.

What these employees did was put too many of their eggs in one basket. Their portfolios were too centered around the company’s stock. This is never a good idea, even if the company that you work for seems to be a very solid company with a lot of growth potential.

A well-balanced portfolio should include a wide variety of investments. This is called diversification. It creates a certain amount of safety in your investments because if one stock does poorly, there is a chance that others will do well and the average balances out.

Employees would do well to invest in their company’s stock, especially if it is a company that they believe will do well. It’s even better when they can get the stock at discounted prices.