Netflix stock options question
I got an offer from Netflix and just read/watched the optional stock options allocation. The example given: $100 stock option price can be bought at $40 (40% of the price). The example then said for this option to be profitable, the stock option price will need to reach over $140. How does this work? If I get an option for $40 but worth $100 in the market, don’t I get $60 profit immediately? Sounds too good to be true so I am missing something. My guess is $100 is the “stock price” and employee pays 40% of the stock price to purchase an option with $100 strike price. So during exercise, employee pays another $100 to buy the stock, with the $40 already paid, we need $140 to break even. Sounds right?
I read another doc and confirm my second paragraph is the correct one. For those who know basic of options, the first guide I read was a little confusing since it uses the general term “price”.
Strike price, aka, your buying price. Enterprise value, aka, whatever investors paid in the last round. Delta is your profit and you need to pay tax on that.
Your second statement is correct. $40 is the price you pay for the privilege to buy Netflix stock at $100. So if the current stock price is $150 on Nasdaq, I would exercise that option and make $10 in arbitrage immediately.
I’ve heard that Netflix doesn’t give RSUs, they instead pay total comp as a regular salary. No vesting period, they pay upfront. That’s why many folks want to get into Netflix from what I’ve read.
Correct! So if the option is given to you at $100. Anything above $100 is profit that goes in your pocket. But for you to gain that profit you need to exercise the option. Basically if the option is now worth $140. When you exercise the options at $140. You only get $40 in profit.
Option has a price and underlying stock has a price. The option also has a strike price. You need to get these three to understand. Suppose option price is $40 and the strike price is $100. If you buy an option then to break even you need the underlying stock price to be $140.
The confusion is that it costs 40% to exercise your option. Not a 40% discount. But this is pretax dollar so it realistically needs to go up more than 40% for you to see profit because you will pay taxes when your exercise it. Long term it’s a great deal because you have 10 years to exercise those options which is unheard of. If you don’t think the stock will go up 40% in 10 years then obviously don’t buy. Compared with buying on the open market you will end up with 2.5x as much shares with the SOP.
You are paying $40 to have the option of purchasing the shares at $100. In other wordswhenever you exercise your option, you pay the $100 per share. Since you have paid $40 to purchase the option that means your net price for purchasing would be $140. Anything above that is profit and everything below that is your loss. There are a few more factors when it comes to options (time, volatility, etc.) but that's a whole different question.
Do u mind share tc?
Netflix is public?
This question? Seriously?!
I’m used to see public companies grant RSUs not stock options.