Illustartes the Risks of holding Employee Stock Options. Those risk are the delta risk and theta risks and the only way to reduce the risks efficiently is to sell calls and to a lesser degree buy …
Illustartes the Risks of holding Employee Stock Options. Those risk are the delta risk and theta risks and the only way to reduce the risks efficiently is to sell calls and to a lesser degree buy puts.
How to manage grants of Employee Stock Options to reduce risk, minimize taxes and enhance value seems to be a subject that most participants in the Employee Stock Options arena avoid like the plague.
Although many think that they have support in a paper called "Optimal Exercise of Employee Stock Options and Securities Arbitrations" by Craig McCann and Kaye Thomas 2005 to promote the strategy of exercise early, sell the stock and "diversify", it can be proven that that strategy is highly inefficient in all but rare situations.
That strategy is worse than doing nothing as there are large penalties associated with the strategy that diversifying can never overcome and it avoids risk reduction where the risk is the highest.
The reliance on that strategy promotes the interests of the employer/company and the wealth managers at the expense of the grantee/employee.
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