Questions   &   Answers      for holders of EmployeeStock Options
Questions and Answers for Employee Stock Options HoldersQuestion #1Which strategy of managing vested in-the-money employee...
.Question #2Which strategy forfeits part of the employee stock options value (called "timevalue") back to the company and ...
Question #3.Which strategy reduces risk the least?a) Hold to near expiration (without early exercise or hedging) and exerc...
Question #4.Which strategy has no merit most of the time in the life of the employee stockoptions?a) Hold to near expirati...
Question #5.Which strategy has the best expected after tax returns tothe employee/ grantee with the least risk?a) Hold to ...
.Question # 6What Strategy generates early cash flows to the company through the companyissuing new shares to the employee...
.    Question #7    What strategy benefits the Wealth Managers by getting most Assets Under    Management?    a) Hold to n...
.    Question # 8    Which strategy is most prone to violations of SEC Rule 10 b-5    a) Hold to near expiration (without ...
.    Question #9    Which Strategy is rarely prohibited by the company in the stock plan and grant    documents, but is hi...
.    Question #10    Which strategy is most prone to implicate the Wealth Managers in violations    of fiduciary duties to...
.    All of the questions and answers are relevant for understanding and managing    your granted employee stock options. ...
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Questions and answers for Fiduciaries and Options Plan designers

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The Answers to these Questions illustrate that selling calls should be promote to holders of employee stock options.

www.truthinoptions.net
olagues@gmail.com
504-875-4825

http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html

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Questions and answers for Fiduciaries and Options Plan designers

  1. 1. Questions & Answers for holders of EmployeeStock Options
  2. 2. Questions and Answers for Employee Stock Options HoldersQuestion #1Which strategy of managing vested in-the-money employee stock options,eliminates the alignment between the grantee and the shareholders the earliest,thereby defeating the purpose of the grants?a) Hold to near expiration (without early exercise or hedging) and exercise if in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls and sometimesbuy puts.Answer #1b) All alignment is eliminated when the stock is sold. Full alignment continuesin a) and partial alignment continues in c)
  3. 3. .Question #2Which strategy forfeits part of the employee stock options value (called "timevalue") back to the company and causes an early payment of income tax?a) Hold to near expiration (without early exercise or hedging) and exercise if in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls andsometimes buy puts.Answer #2b) The penalties are quite high with b).There are no penalties with a) and c)
  4. 4. Question #3.Which strategy reduces risk the least?a) Hold to near expiration (without early exercise or hedging) and exercise if in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls and sometimesbuy puts.Answer #3a) does not reduce the risk of a concentrated position at all.b) eliminates the concentrated position but exposes the employee to market riskon the residual amounts after forfeiture of "time value" and paying an early tax.c) Reduces risk of the concentrated position and incurs no exposure to marketrisk
  5. 5. Question #4.Which strategy has no merit most of the time in the life of the employee stockoptions?a) Hold to near expiration (without early exercise or hedging) and exercise if in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls andsometimes buy puts.Answer #4b) the probability of the stock increasing to levels when even the promoters ofb) advise using it, is very small (i.e. about one chance in 10 after vesting),whereasc) allows risk reduction immediately after vesting in many situations
  6. 6. Question #5.Which strategy has the best expected after tax returns tothe employee/ grantee with the least risk?a) Hold to near expiration (without early exercise or hedging) and exerciseif in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls and sometimesbuy puts.Answer #5a) has the greatest potential with the greatest riskc) has less potential than a) but less riskb) has the least potential and more risk than c)
  7. 7. .Question # 6What Strategy generates early cash flows to the company through the companyissuing new shares to the employee and taking a tax deduction as theemployee exercises and pays cash to the company and to the government.a) Hold to near expiration (without early exercise or hedging) and exercise if in-the-money.b) Make early exercises, sell stock and "diversify".c) Reduce risk, generate income by selling exchange traded calls andsometimes buy puts.Answer #6b) generates earliest cash flow to the company, which is one of the mainreasons why it is promoted by the industry
  8. 8. . Question #7 What strategy benefits the Wealth Managers by getting most Assets Under Management? a) Hold to near expiration (without early exercise or hedging) and exercise if in- the-money. b) Make early exercises, sell stock and "diversify". c) Reduce risk, generate income by selling exchange traded calls and sometimes buy puts. Answer #7 b) The Wealth Managers use the net after tax proceeds from early exercise and selling the stock to buy mutual funds, which generally under-perform the market indexes.
  9. 9. . Question # 8 Which strategy is most prone to violations of SEC Rule 10 b-5 a) Hold to near expiration (without early exercise or hedging) and exercise if in- the-money. b) Make early exercises, sell stock and "diversify". c) Reduce risk, generate income by selling exchange traded calls and sometimes buy puts. Answer # 8 c) There has never been a 10 b-5 prosecution for selling calls or buying puts to reduce risk and there has never has been a prosecution for holding to near expiration, exercising and selling. All prosecutions have been from early exercises, sell and diversify. Many violations for early exercises and sell are never prosecuted civilly or criminally.
  10. 10. . Question #9 Which Strategy is rarely prohibited by the company in the stock plan and grant documents, but is highly discouraged by the "Insider Trading Policies". a) Hold to near expiration (without early exercise or hedging) and exercise if in- the-money. b) Make early exercises, sell stock and "diversify". c) Reduce risk, generate income by selling exchange traded calls and sometimes buy puts. Answer #9 c) There is an attempt to stop the most beneficial strategy to the grantees by the company fraudulently using the Insider Trading Policy to try to stop selling calls and or buying puts even though the the Insider Trading Policy allows b) and there has never been a civil or criminal complaint for c).
  11. 11. . Question #10 Which strategy is most prone to implicate the Wealth Managers in violations of fiduciary duties to their clients and violations of 10 b-5. a) Hold to near expiration without early exercise or hedging and exercise if in- the-money. b) Make early exercises, sell stock and "diversify". c) Reduce risk, generate income by selling exchange traded calls and sometimes buy puts. Answer #10 b) The companies and the wealth managers ally together to promote the strategy that best helps themselves but most diminish the value to the grantees. And the employees are intimidated from pressing the issues for fear of losing their jobs.
  12. 12. . All of the questions and answers are relevant for understanding and managing your granted employee stock options. John Olagues 504-875-4825 olagues@gmail.com http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470471921.html

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