Employee Stock Option (ESO) Valuation Calculator
Estimate the current value of your employee stock options, potential after-tax proceeds at different future stock prices, and your break-even point using a Black–Scholes-based model.
ESO Valuation Inputs
Tax assumptions (simplified)
For quick planning, we apply a single blended tax rate to the gain when you exercise and sell. Actual tax rules (ISOs vs. NSOs, AMT, country rules) can be more complex.
Future stock price scenarios
Compare after-tax proceeds if the stock moves up or down by a percentage from today.
Results
Option value today
- Black–Scholes value per option
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- Total theoretical ESO value
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- Intrinsic value per option (max(S − K, 0))
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- Total intrinsic value
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Break-even & leverage
- Total exercise cost (K × options)
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- After-tax break-even stock price
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- Leverage on upside scenario (ESO % vs. stock %)
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After-tax proceeds by scenario (exercise & sell immediately)
| Scenario | Stock price | Pre-tax gain | Estimated tax | After-tax proceeds |
|---|---|---|---|---|
| Run the calculation to see scenario results. | ||||
How this employee stock option calculator works
This tool helps you understand the economic value of your employee stock options (ESOs) and how much cash you might receive if you exercise and sell at different stock prices. It combines a Black–Scholes valuation with simple after-tax scenario analysis.
Key inputs
- Number of options – how many options you hold or expect to vest.
- Current share price (S) – latest market price of the company’s stock.
- Exercise (strike) price (K) – the fixed price you pay per share when you exercise.
- Time to expiry (T) – years until the options expire (not just vest).
- Volatility (σ) – annualized standard deviation of stock returns. Higher volatility increases option value.
- Risk-free rate (r) – yield on a government bond with similar maturity.
- Dividend yield (q) – expected annual dividend yield. Dividends reduce call option value.
- Blended tax rate – approximate combined tax rate on your profit when you exercise and sell.
Formulas used
We model each ESO as a European call option with continuous dividend yield using the Black–Scholes–Merton formula:
Black–Scholes call value:
\[ C = S e^{-qT} N(d_1) - K e^{-rT} N(d_2) \]
where
\[ d_1 = \frac{\ln(S/K) + (r - q + \tfrac{1}{2}\sigma^2)T}{\sigma \sqrt{T}}, \quad d_2 = d_1 - \sigma \sqrt{T} \]
\(N(\cdot)\) is the cumulative standard normal distribution.
The calculator multiplies the per-option value \(C\) by the number of options to get the total theoretical ESO value. It also computes the intrinsic value:
\[ \text{Intrinsic per option} = \max(S - K, 0) \]
\[ \text{Total intrinsic value} = \text{Intrinsic per option} \times \text{Number of options} \]
After-tax scenario analysis
For each scenario stock price \(S_{\text{scenario}}\), we assume you exercise and immediately sell:
\[ \text{Pre-tax gain} = (S_{\text{scenario}} - K) \times \text{Number of options} \]
\[ \text{Estimated tax} = \max(\text{Pre-tax gain}, 0) \times \text{Tax rate} \]
\[ \text{After-tax proceeds} = \text{Pre-tax gain} - \text{Estimated tax} \]
If the scenario stock price is below the strike price, the options are “underwater” and the gain is zero.
Break-even stock price
The after-tax break-even price is the stock price at which your after-tax profit is zero, given your tax rate. We approximate this as:
\[ S_{\text{break-even}} = K \left(1 + \frac{\text{Tax rate}}{1 - \text{Tax rate}}\right) \]
Intuitively, the stock must rise above the strike price enough to cover the tax on your gain.
Limitations and important caveats
- This is an educational tool, not personalized tax, legal, or investment advice.
- Real-world ESOs often have vesting schedules, early exercise restrictions, and forfeiture rules that are not modeled here.
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Tax treatment varies widely:
- In the U.S., ISOs vs. NSOs and the Alternative Minimum Tax (AMT) can materially change outcomes.
- In Canada, the stock option deduction and employer reporting rules apply.
- Other countries have their own specific ESO regimes.
- Black–Scholes assumes you can trade continuously and hedge risk, which is not true for illiquid employee options. Many professionals apply a discount to reflect non-transferability and early exercise behavior.
Always review your option grant agreement and talk to a qualified tax or financial advisor before exercising or selling options.
FAQ
What is an employee stock option (ESO)?
An employee stock option is a contract that gives you the right to buy a certain number of company shares at a fixed price (the strike price) for a defined period. ESOs are typically granted as part of compensation to align employees with shareholders and help attract and retain talent.
How is this different from an ESOP?
An ESO is an option to buy shares at a fixed price. An ESOP (Employee Stock Ownership Plan), common in the U.S., is a qualified retirement plan that holds company stock on behalf of employees. This calculator focuses on options, not ESOP plan balances.
What inputs matter most for ESO value?
The biggest drivers of option value are:
- Time to expiry – more time means more opportunity for the stock to move up.
- Volatility – more volatility increases the chance of large upside moves.
- Difference between stock price and strike price – options that are already in the money are worth more.
How should I choose volatility?
For public companies, you can approximate volatility using historical stock price data (e.g., 1–3 years of daily returns). For private startups, investors often assume higher volatilities (40–80%+), but there is no single correct number. The higher the volatility you assume, the higher the Black–Scholes value.
Can this calculator tell me exactly when to exercise?
No. Optimal exercise timing depends on your risk tolerance, diversification needs, cash availability, tax situation, and expectations about the company’s future. Use this tool to understand the trade-offs, then combine it with professional advice and your own judgment.