Tells why the wealth management industry promotes the strategy of early exercise, sell and diversify.

2. Who Benefits from making Early Exercise
of
Employee Stock Options ?

3. The Answer is that the Company
and the Wealth Managers Benefit

4. How do those Benefits flow to the
company?

5. The answer is that company gets a reduction of their
liability to the employee for the grant of the options.
The company also gets early cash flows from the
employee paying the exercise price and early cash
flows from tax deductions of the "intrinsic value" as a
compensation expense.
The company also gets a reduction of expenses from
earnings as the early exercises allow the companies
to report lower "fair values" on the grant day because
the "expected time remaining to expiration" will be less
for future grants of ESOs.

6. How do the Wealth Managers benefit from the early
exercises?

7. Wealth Managers charge fees based on the Assets Under
Management. AUMs will come from the net proceeds after
exercise, forfeit of time premium, and paying an early tax as
those proceeds are diversified into mutual funds and the
like.
So Wealth Managers promote the early exercise because it
generates early AUM which they may never get if the client
efficiently sells calls and buys puts. The client may defer the
exercise until near expiration by proper risk reducing
adjustments over time.The Wealth Manager will get no AUM
if the stock is trading below the exercise price at expiration.

8. Are there any advantages to early exercises of
ESOs, sell stock and diversify?

9. Rarely will there be any advantage to making early
exercises, sell and diversify. This is so because the
advantages of "diversification" are small but are
overstated by those promoting the strategy. The
penalties of the forfeiture of the "time value" and the
payment of the early taxes are high except in rare
circumstances. So the promoters of the strategy
generally understate the penalties.

10. How do Companies and Wealth Managers discourage
selling exchange traded calls, which is the only efficient way
to reduce risk and delay taxes to the grantees of ESOs?
Answer...The Companies intimidate the employees to think
that the only way to manage the ESOs is by making early
exercises and "diversifying". They create organizations to
discourage management of the ESOs in ways which benefits
the employees and they write books trying to do the same.
They try to get Congress to outlaw efficient management of
the ESOs.
There are even some lawyers who sue the Wealth Managers
to force them to promote early exercises and diversify.
It is no wonder that there are very few employees who handle
their ESOs grants properly.