Employee Stock Options: Protect Your Paper Profits

If you're a five-year veteran employee of Microsoft (MSFT Quote), you're probably feeling pretty wealthy right now.

Microsoft grants stock options to all employees upon employment and annually in the first quarter. Options granted in the first quarter of 1994 have appreciated 1,340%. Average gain in your options over the past five years is 624%.

Do the next five years look so rosy? That depends. Microsoft has a market capitalization of $360 billion. For the stock price to double, Microsoft has to create an additional $360 billion in enterprise value -- that's a lot of copies of MS Office 2000. ...