Employee stock options?... my company is doing IPO soon...?

My company is going public soon and they are offereing me 5000 options. What does that mean exactly? Do I have to pay for those or do I just get them for free and then whatever the stock price is, I make money on it--- ???

Normally, the options are free and last for 10 years. They I expect will be at the IPO price, but perhaps not. Anyway they are a good deal. They do not cost you a cent and they may become very valuable in time assuming that the company grows. In the future they may give you other options if they consider you worth keeping. One thing about options, if you leave the company for any reason, they expire in a very short time. There are tax consequences with the options when you exercise them if they are of a certain type (I forget the type). Another type comes without tax consequences.

Read the paperwork when you get it. See if there are restrictions on how soon you can buy and sell.

While some stock options can be sold, usually you have to exercise them. If you do a same day sale, a broker will technically loan you money to buy the stock, sell it and send you the difference. The difference is ordinary income. If you buy the stock and hold onto it, there's a risk of paying AMT.

Since your company is having an ipo they are most likely offering you the options at the premarket price. In almost every IPO these premarket prices are significantly lower than when they first hit the market. Even if they are not free the options are a great investment and should yield a nice 20 percent pop, or much more!

The stock option (which they are giving you for free) is the right to buy shares in the company at a certain price. If you believe the stock price will go higher than the option price, then the option is potentially valuable. If the stock price goes lower than the option price, then the option is worthless.

You need not purchase the stock immediately. The paperwork (which is likely to be voluminous) will spell out the price at which you may buy, the number of shares and type of stock involved, and the length of time until the option expires.

It is possible that the company or other invividuals can buy your option from you. The paperwork probably spells out the conditions under which you can sell your option, if that is a possibility.