This document discusses two main risks of holding employee stock options: 1) Delta risk, which is the risk that the stock price will decrease, thereby reducing the value of the options, and 2) Theta risk, which is the risk of time value eroding over time. It provides an example of how the value of 1000 options could decrease from $35,000 to $10,000, a 70% loss, if the stock price fell 20% from the vesting price of $75. While reducing risk is important when stocks are highly valued after vesting, few methods exist to do so aside from selling calls or buying puts, which plans may prohibit or employees cannot afford.
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- Major participants include banks, companies, investment funds, and retail traders.
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- The forex market allows trading of major currencies such as the US Dollar, Euro, Japanese Yen, and others.
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The document provides an overview of the forex market, including:
- It is a decentralized global market for trading currencies, with a daily trading volume of $1.5 trillion.
- Major participants include banks, companies, investment funds, and retail traders.
- Economic, political, and psychological factors influence currency exchange rates.
- The forex market allows trading of major currencies such as the US Dollar, Euro, Japanese Yen, and others.
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The document proposes a new type of employee stock option called Dynamic Employee Stock Options (DESOs). DESOs are designed to better achieve the goals of traditional employee stock options (TESOs) by addressing structural problems with TESOs. With DESOs, upon exercise the employee would receive a percentage of shares (e.g. 75%) and new stock options rather than 100% of shares. This reduces risk for employees and better aligns their interests with shareholders over the long run compared to TESOs. The document provides an example of how DESOs would work compared to TESOs.
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Social media strategies are becoming increasingly important for retailers and brands. They allow companies to amplify the size of their audience and reach customers in new ways. Effective strategies promote transparency and allow customers to share photos and reviews, both positive and negative. The goal is to increase customer satisfaction while also boosting employee loyalty.
The document is about a cute puppy. It notes that puppies are cute and also describes them as funny. In just a few words, it highlights the cuteness and humor of puppies.
The Ocean Ridge Jug Band, formed by residents at Ocean Ridge Assisted Living in Oregon, has gained popularity beyond their retirement community, wowing audiences of hundreds with their performances. Starting with just 7 members, the band now has 14 performers who see their mission as bringing joy and happiness to audiences through songs, dances, poems and humor. Their record-breaking performance at a health care conference in Portland drew a standing ovation and tears from some in the audience who were moved by the vibrant senior performers.
TEDx talk by TED fellow sanjukta basu at TEDxITMUSanjukta Basu
I was invited as a speaker at TEDx event at Institute of Technology and Management University, Gurgaon. I spoke about the taboo around rape and how we have to end the shame and talk about it.
TEDx talk by TED fellow sanjukta basu at TEDxITMUSanjukta Basu
I was invited as a speaker at TEDx event at Institute of Technology and Management University, Gurgaon. I spoke about the taboo around rape and how we have to end the shame and talk about it.
1. .
Calculating the Risks of Holding
Employee Stock Options
2. .
There are two substantial risks to holding employee stock options that this
presentation will focus on.
1. The Delta Risk...the chance that the stock will go down thereby reducing the
"fair value" of the options by a percentage of the drop of the stock within a short
period of time. If an ESO has a .50 delta, the option is expected to drop 50
cents for a one dollar drop in the stock.
2. The Theta Risk... the chance that the "time value" will erode over time.
These two risks will change as time passes and the stock has decreased or
increased.
For example the delta will increase from perhaps .55 to.65 if the stock goes
from $100 to $110. On the other hand if the stock goes from $100 to $90, the
delta may have dropped to .43. Time passing gives more delta to ESOs that are
in-the-money and less delta to ESOs that are out-of-the-money ESOs.
3. .
Let's assume that you were granted 1000 ESOs on a stock trading at $50.
The delta at grant day may have been .62, with the "time value" equal to $22,000.
Three years later when those options vest, the stock is trading at $75 and the delta
(or equivalent stock position) is now .85.
The "time value" may have dropped to $10,000, with $25,000 of "intrinsic value" for
a total value of $35,000.
If the stock remained near $75 at expiration day, the $10,000 'time value" is lost. If
the stock was 20% lower from $75 (i.e. $60), the "time value is lost" and the"
intrinsic value has dropped to $10,000. So the $35,000 of value decreased to
$10,000 or down 70% from when the stock was $75.
4. .
The position where the stock was $75 after vesting is highly risky and fiduciaries
are required to try to reduce risk. Holders of ESOs are faced with this situation 3
times as often as they are faced with the situation of the stock trading at near $110.
But no one seems to be interested in how to reduce risk when the stock is 50%
above the strike after vesting. Why? The only method is to sell calls or buy puts in a
way that efficiently reduces delta and erosion risks.
There are some rare cases where that method is prohibited by the stock plans and
sometimes the employee does not have the necessary funds to initiate the trades.
But that strategy requires the wealth managers to perform way above their abilities.
So they promote early exercise, sell and "diversify".