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Methodology

Stock Option Offer Value Calculator methodology

Separate option count, exercise cost, assumed price and realization uncertainty.
Duc Nguyen X.By Duc Nguyen X.· Founder, Wage101Last reviewed: View update historyMethodology

Educational only: Work and pay decision support, not tax, legal, financial or career advice.

Privacy: Calculations run locally; Wage101 does not receive your work or pay inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral work and pay planning using your own assumptions.

1. Formulas and units

Probability-weighted value
probabilityWeightedValue = projectedIntrinsicValue × realizationProbability

Where

realizationProbability
Realization probability (decimal)Source: User assumption
probabilityWeightedValue
Probability-weighted option value (currency units)Source: Calculated output
projectedIntrinsicValue
Projected intrinsic value (currency units)Source: Calculated output
Projected intrinsic value
projectedIntrinsicValue = max(projectedGrossShareValue − totalExerciseCost, 0)

Where

projectedIntrinsicValue
Projected intrinsic value (currency units)Source: Calculated output
totalExerciseCost
Total exercise cost (currency units)Source: Calculated output
projectedGrossShareValue
Projected Gross Share Value (currency units/year)Source: Calculated output
Total exercise cost
totalExerciseCost = optionCount × exercisableFraction × strikePrice + additionalExerciseCosts

Where

optionCount
Option count (options)Source: User assumption
exercisableFraction
Exercisable fraction (decimal)Source: User assumption
strikePrice
Strike price (currency units/share)Source: User assumption
additionalExerciseCosts
Additional exercise costs (currency units)Source: User assumption
totalExerciseCost
Total exercise cost (currency units)Source: Calculated output
Break-even share price
breakEvenSharePrice = strikePrice + additionalExerciseCosts ÷ exercisableOptionCount

Where

strikePrice
Strike price (currency units/share)Source: User assumption
additionalExerciseCosts
Additional exercise costs (currency units)Source: User assumption
breakEvenSharePrice
Break-even share price (currency units/share)Source: Calculated output
Underwater amount
underwaterAmountPerShare = max(strikePrice − projectedFutureSharePrice, 0)

Where

strikePrice
Strike price (currency units/share)Source: User assumption
projectedFutureSharePrice
Projected future share price (currency units/share)Source: User assumption
underwaterAmountPerShare
Underwater amount per share (currency units/share)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Pay, time, benefits and work-related costs use the units stated beside each input.

2. Worked example

Input assumptions

Value 1,000 options with 75% exercisable, a 10 strike, 18 assumed future price and 80% realization probability.

Calculation and outputs

Example

Value 1,000 options with 75% exercisable, a 10 strike, 18 assumed future price and 80% realization probability.

Probability-weighted option value
4,800.00 currency units
Projected intrinsic value
6,000.00 currency units
Total exercise cost
7,500.00 currency units
Break-even share price
10.00 currency units
Underwater amount per share
0.00 currency units

Exercise cost, intrinsic value and probability-weighted value are shown separately.

Interpretation

Keep exercise cost separate from intrinsic and probability-weighted value.

3. Validation and boundary checks

  • Option count is a positive whole number.
  • Exercisable fraction is greater than zero for a result.
  • Probabilities remain between 0 and 1.

4. Assumptions and source classification

  • Future share price and realization probability are user assumptions.
  • The entered exercisable fraction applies to the full option count.
  • Additional exercise costs are entered as one total.

This calculator has no current policy-data dependency. Its work and pay assumptions are user supplied. Registered family-level regression suites exercise the shared work-logic engine and worked-result reconciliation.

5. Limitations

  • No share-price forecast, tax, expiration, dilution or plan term is applied.
  • The result is not a valuation or exercise recommendation.
  • Liquidity and concentration risk are outside the model.

This is educational decision support, not personalised tax, legal, financial or career advice. Check the treatment of your circumstances under the rules that apply to you and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this calculator. Work and pay inputs remain user-supplied because they vary by person, job and contract.

Change history

  1. : Initial public release of the Stock Option Offer Value planner and methodology.

Related reading

Use these practical guides to interpret the decision and its assumptions.

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