Cvs Stock option for pharmacist
Started by ancienbon
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It is worth nothing until the share price is worth than the strike price.
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If the company's stock market price rises above the call price, the employee could exercise the option, pay the exercise price and would be issued with ordinary shares in the company. The employee would experience a direct financial benefit of the difference between the market and the exercise prices. If the market price falls below the stock exercise price at the time near expiration, the employee is not obligated to exercise the option, in which case the option will lapse. (Wikipedia)
So if stock price for cvs goes up to 120. You can do 120-104.82=15.18... then 15.18*78=1184 profit for you
So if stock price for cvs goes up to 120. You can do 120-104.82=15.18... then 15.18*78=1184 profit for you
These stock options mean that you can purchase up to 78 shares of CVS stock for $104.82 each, at any time within the allowed window (I'm guessing 10 years), as long as you are still a CVS employee when you 'exercise' the option.
Unfortunately right now, the market price of CVS is $93.84, so you should not exercise the stock options now because doing so would require you to pay $104.82 per share, which is obviously stupid. So E-Trade will probably show the current value of your options as $0 right now, but that doesn't mean they're completely worthless. Remember that they have a 10 year (or whatever) expiry date, so you would expect that at some time during the next 10 years, CVS stock will rise above $104.82. Let's say they rise to $150 in 2020. Then you can exercise the stock options and buy 78 shares for $104.82 each = $8,175.96. Now you can either keep the stock, or sell them on the same day for $150 each x 78 = $11,700 minus $8,175.96 that you just paid for them = $3,524.04 profit.
As for why they say they are worth $1,000, they probably use the Black-Scholes equation to value the options at $1,000 which takes into account the 10 year time period and the expected rise and volatility of the stock over that time period.
Unfortunately right now, the market price of CVS is $93.84, so you should not exercise the stock options now because doing so would require you to pay $104.82 per share, which is obviously stupid. So E-Trade will probably show the current value of your options as $0 right now, but that doesn't mean they're completely worthless. Remember that they have a 10 year (or whatever) expiry date, so you would expect that at some time during the next 10 years, CVS stock will rise above $104.82. Let's say they rise to $150 in 2020. Then you can exercise the stock options and buy 78 shares for $104.82 each = $8,175.96. Now you can either keep the stock, or sell them on the same day for $150 each x 78 = $11,700 minus $8,175.96 that you just paid for them = $3,524.04 profit.
As for why they say they are worth $1,000, they probably use the Black-Scholes equation to value the options at $1,000 which takes into account the 10 year time period and the expected rise and volatility of the stock over that time period.
