Expectations Investing

• Current stock price. The payoff to the employee is the positive dif-

ference between the stock price and the exercise price on the date

that the employee exercises his or her options. Companies almost

always establish the exercise price, the price at which an employee

can buy the company’s stock, at the market price on the date of

grant; the exercise price remains fixed over the entire option life,

usually ten years. Options are available for exercise after employees

become vested, typically three to five years after the grant date.

• Exercise price. Options become more valuable as the stock price

increases and less valuable as the stock price decr