To be clear, it was a stock option, and the option price was 20% of the stock price. So it had to go up 20% to break even. But if it went up 40% you doubled your money.
This is basically what happens behind the scenes at other companies that offer you stock compensation in the form of options. It's just all hidden from you.
Especially after the backdating scandal many companies moved to offering RSUs. These were shares just purchased at a favorable price, no option involved.
The stock is at $100. I purchase the option to buy it in the future at $100. I pay $20 for this option. I'm currently $20 in the hole, because I paid $20 for the option and got nothing.
In the future, when the stock is at $120, I exercise the option and buy the stock for $100 with money borrowed from ETrade, and then sell it for $120. I've spent a total of $20, and gained $20 from the sale after paying back the loan, and am thus even.
In the farther future, when the stock is at $140, I exercise my option and pay $100 for the share with borrowed money. I've paid a total of $20 and I get $40 after paying back the loan. I'm $20 ahead.
Since I paid $20 out of my salary for the option, when it went up 20% I broke even, when it went up 40% I doubled my money.
If they provide it to you on a vesting schedule like other companies do, you gain time in market - i.e. you also gain the stock appreciation until they are vested.
No vesting. You purchased the options monthly based on the current price, and they were immediately vested and good for 10 years, whether or not you were employed with the company.
