For the uninitiated, stock options work by allowing the owner of the options the chance to buy a specified number of shares, at a specified price, over a specified period of time. It all sounds relatively simple, but the terminology can prove confusing.
For example, the price at which you can buy stock is called the strike, or exercise price.
Usually, employees earn the right to exercise their options at this price after having worked for a company for a predetermined amount of time. This is called vesting, and different companies use different models to specify how shares vest.
A common model used by many Hong Kong Internet start-ups allows annual vesting spread out evenly over four years.
Thus, every 12 months, an employee vests 25 per cent of the shares.
This allows the worker to buy a quarter of his share options one year after commencing employment.
Upon vesting, an employee can immediately buy their shares at the strike price. They can then sell the shares at the market price, which is where the whole scheme can become particularly lucrative. If the company's price is considerably higher than the strike price, the lucky employee pockets a fat profit.