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Buying Puts to Hedge Employee Stock Options or Long Stock has unique Tax Advantages
Assume that an employee was granted 1000 ESOs onGoogle two years ago when the stock was trading at$300.00. Assume that the employee had read all the articles on this page and knows that he should try to avoid premature exercises and hedge with...
(No rating) 3-9-2008 Views: 331

Closer look at IRS Rule 1092, IRAs and ESO tax treatment
This is a discussion of the IRS Rule 1092 as it relates to employee/executive stock options and IRAs---------------------------------------------------------------------Off Setting Positions with Stock and Listed Options:If an investor...
(No rating) 2-16-2008 Views: 301

How a Professional Market Maker would Manage his Employee stock options
Attached is a Comprehensive Article by John Olagues and Ray Wollney. This article contains all the information about managing your ESOs. The article does not have much discussion onbuying puts to hedge.However, in some circumstances buying puts...
(No rating) 12-31-2007 Views: 329

Further Explanations of Taxes and Options
Assume that an investor sells 10 Apple Computer listed calls with a strike price of 150 expiring in Jan 2010 for $46,700 when the stock is trading at $156.34 on October 1, 2007.Assume also that he holds this position untill the listedcalls...
(No rating) 10-1-2007 Views: 437

The mechanics of Short Selling stock and Selling Listed Calls
In this article I will explain how short sales of stock and selling (writing) listed calls are carried out. Assume that you are bearish on Apple computer and tell your broker to short sell 1000 deltas (equivalent share position) of the stock. He...
(No rating) 9-18-2007 Views: 533

Hedge your ESOs and get Special Tax Benefits
The purpose of this article is to prove that hedging ESOs by selling listed call options and sometimes buying putsis tax friendly. We will do so by giving an example withAmazon Stock:AMZN stock closed on September 6, 2007 at $86.21.Suppose that...
(No rating) 9-6-2007 Views: 554

Federal Courts Favor Back Daters in 16b cases
In 1934, the Congress passed a law trying to stop less ethical executives from exploiting their positions. The law is generally referred to Section 16 b of the Securities and Exchange Act of 1934. This law is often called the short-swing rule....
(No rating) 9-1-2007 Views: 180

Higher implied volatilities encourages Hedging ESOs instead of Premature Exercises and Sales
In the past two months since June 2007 we havewitnessed higher short term historical volatilities and substantially higher implied volatilities in a large number of stock options on individual equities. As any student of the options game knows,...
(No rating) 8-22-2007 Views: 503

Sell calls to hedge your employee stock options and deposit the proceeds into an IRA
Assumptions:Suppose you own Employee Stock Options to purchase 2000 shares of ABC company at 20 and also own 1000 shares of previously restricted stock. The stock trades at 40 and both the options and restricted stock are vested. The taxes...
(No rating) 8-18-2007 Views: 565

How Steve Jobs managed his Employee Stock Options.
Attached is a copy of a Form 4 required by the SECto be filed by executives of public companies whenbuying and selling equity securities of their company.The attached shows that Steve Jobs exercised 120,000 ESOs to buy Apple stock at $5.75 on...
(No rating) 8-17-2007 Views: 475

How Much does an Employee Throw Away by Making Early Exercises of ESOs
In many of my articles I advise employees to avoid premature exercises of their employee stock options because it forfeits the remaining "time premium" to the company and incurs an early tax liability for the employee which also goes...
(No rating) 8-14-2007 Views: 474

Using IRAs to Manage Your Employee Stock Options
Most advisers claim that you need extra cash or assets to hedge your ESOs. There is a wayto do it without extra cash or assets.Assume that you own vested employee stock options to buy 500 shares of Entergy Corp at $40.00 per share. The impied...
(No rating) 5-23-2007 Views: 555

Some advisors say Optionees are prohibited from hedging their Employee Stock Options.
Many Advisors to optionees claim that theoptionees are prohibited from hedging theiremployee stock options with listed calls and puts because the company prohibits these sales by contract or has policies to that effect. My experience is...
(No rating) 5-7-2007 Views: 739

An Early Exercise of ESOs is Worse than an Early Withdrawal from a Traditional IRA.
For Example Google Options : Assume that a Google employee was granted options to buy 1000 shares of common stock at 300 two years agowhich are now vested. He believes that there is a high probability that he will be at the company for at least...
(No rating) 5-5-2007 Views: 694

Google Transferables Revisited and Updated
Since my earlier article on the Google Transferables, several facts have emerged. Those are:1. Morgan Stanley has gathered a total of four biddersfor the transferables. Those are Credit Swiss, Morgan Stanleyitself, UBS Securities and Citicorp....
(No rating) 5-2-2007 Views: 650

How to Handle Your Apple Equity Compensation .
Assumptions:Let's suppose that you had been granted 5000 Apple Restricted Stock five years ago which vested three years ago when the stock was 30. You paid the tax on the stock and did not sell.You also were granted 10,000 Employee Stock Options 3...
(No rating) 4-27-2007 Views: 726

New Design for Employee Option and Stock Plans
Ever since FASB and the SEC declared that companies must theoretically value Employee Stock Options when granted and expense that theoretical value over the vesting period, there has been a very keen interest in avoiding the over-valuation of...
(No rating) 3-28-2007 Views: 601

Profits from your Employee Stock Options can be Tax Free
Yes, you can turn otherwise ordinary income from your Non Qualified Executive Stock Options gains into tax free income.The attached document holds a clue. In order to do it, you must have as an advisor a true market maker expert who has experience...
(No rating) 2-19-2007 Views: 662

Google Transferable Employee Stock Options
On December 12, 2006, Google announced a plan tocreate transferable stock options for employees otherthan for officers and directors. Their new non-qualified ESOs and some existing non-qualified ESOs will become transferable. The expressed idea is...
(No rating) 12-15-2006 Views: 2986

Did the SEC Encourage Back - Dating and Spring - Loading ?
Let's analyse the question.Section 16 b of the Securities and Exchange Act of 1934requires that any profits made by executives throughpurchases and sales of company equity securitieswithin 6 months be returnable to the company.Prior to...
(No rating) 9-20-2006 Views: 3462

If you hold Employee Stock Options and Employer Stock, you should write "Qualified Covered Calls" immediately.
Any holder of Employee Stock Options, who also owns Employer Stock should immediately "write" slightly out-of- the-money long term "qualified covered calls". Qualified covered calls are not subject to the section 1092...
(No rating) 7-9-2006 Views: 8200

Tax Advantages of "Qualified Covered Call" Writes
Holders of common stock of major companies can sell (write)"qualified covered calls" and receive a substantial tax advantage. First the proceeds are received without any tax. If the stock goes up and the writer buys back the written...
(No rating) 6-25-2006 Views: 3401

Mr. Lucky goes to Yahoo
We will call him Mr. "Lucky"We are told that Mr. "Lucky" was granted employee stock options when he went to work for Yahoo on April 16, 2001. The stock was trading at $17.61However, he did not start as CEO and Chairman untill...
(No rating) 6-25-2006 Views: 387

You hold 20,000 Yahoo! ESOs and 10,000 shares of company stock. What should you do to reduce risk?
Lets suppose, three years ago on May 1, 2003, you were granted options giving you the right to purchase 20,000 shares at $25.00.The stock is now trading at $32 with expected time to expiration of 5 years. Your 10,000 shares are fully paid for....
(No rating) 5-1-2006 Views: 5570

Graphical Illustrations of the Results of Premature Exercises
These attached Bar Graphs illustrate how the theoretical values of the employee stock options change under differentassumptions and price movements. These graphs also illustrate what happens when the options are exercised prematurely and the...
(No rating) 4-21-2006 Views: 5876

White Paper on Managing Equity Compensation
See Attached White Paper
(No rating) 4-15-2006 Views: 3599

Tax Treatment on Calls Written to Hedge ESOs
1.There is no tax when the positions are opened. The gains are calculated and are reportable when the positionsare closed or the calls expire out of the money. Any losses the writer may have as a result of hedging may be liquidated and...
(No rating) 4-5-2006 Views: 7732

Five Golden Rules for Managing Employee Stock Options
The Five Golden Rules are:1. Don't exercise your options too early. The premature exercising of ESOs causes substantial value to be forfeited back to the employer. Wait till the last possible date to exercise unless a special event like a merger...
(No rating) 2-16-2006 Views: 5052

Can you do it yourself without Truth In Options?
The answer is that you may be able to do so, if you master most of the articles on this site and you have some experience managing options portfolios. However, even then, it is unlikely that doing it on your own would will save you enough to...
(No rating) 1-22-2006 Views: 101

Does Hedging ESOs Defeat the Purpose of the Options Grant?
Whenever I speak with a person who has experience with employee stock options, I generally get the comment that hedging defeats the object of the options grant. They claim that the purpose of granting ESOs is to alignthe interest of the company...
(No rating) 1-8-2006 Views: 4039

When to exercise and when to hedge your employee stock options.
The answer to that question is not easy. In my opinion it requires advice from an expert who has the following experience and qualifications:1. He must comprehensively understand theoretical options pricing models.2. He must have had substantial...
(No rating) 1-1-2006 Views: 4517

Buying Puts to Hedge ESOs Generally Increases Risks
Some advisors claim that one easy way to reduce the risks of holding Employee Stock Options is to buy listed puts on the employer's stock. They claim that the margin requirements are low, the costs are pre-determined,there will never be a margin...
(No rating) 12-23-2005 Views: 3000

Why Advisors do not Recommend Hedging Employee Stock Options
To any informed trader of stock options, it is a sin to prematurelyexercise your listed call stock options. This is because upon exercise, all remaining time premium is forfeited to the writer of the calls.It is a mortal sin to prematurely...
(No rating) 10-4-2005 Views: 582

How to recognize when executives are trading with inside Information
Let's assume that you hold sustantial employee stock options.Assume also that you realise that hedging with exchange traded options reduces risk, increases your net after tax income, and is the only efficient way to exit your ESOs.Assume also that...
(No rating) 10-2-2005 Views: 1733

Are Executives Prohibited from Hedging their Stock Options
There are many articles that contend that executives are effectively prohibited from using exchange traded listed options to hedge their employee stock options.That alleged prohibition comes from either:1. A contractual prohibition between the...
(No rating) 8-19-2005 Views: 1059

Negotiating for Equity Compensation
This article advises employee/executives on what they should try to accomplish when negotiating with the employer over a equity compensation package. Most executives and managers, even of the largest companies, do not understand the nature of, the...
(No rating) 8-9-2005 Views: 2493

My options' exercise price is 50 and my stock's at 85. What do I do?
Many of the 14 million American employees owning ESOs are looking for the answer to that question. Certainly the predicament isa good one, but can anyone help you makethe right decision?In the view of this writer, some principles toapply...
(No rating) 7-17-2005 Views: 3247

Analysis of a Hedge against Google Employee Stock Options
Assumptions1. Assume that Google common stock is trading for $200.00 per share paying no divdend on February 7, 2005.2. Assume that on February 7, 2005, an employee is granted qualified options to purchase 1000 shares at $200.00 per...
(No rating) 2-7-2005 Views: 2290

Which Calls should I "write"
There are numbers of advisors who advocate selling (writing) listed call options against long stock,especially highly appreciated stock which the owner does not want to sell and incur a tax liability.Selling calls reduces risk. And there is...
(No rating) 1-26-2005 Views: 7524

Exactly How to Manage Your Employee Stock Options
The Objects of this article are..To create a simple strategy, whereby the employee can exit his options positions in a highly efficient orderly manner.To maximize the value of the employee options to the employee and reduce taxes.To reduce the...
(No rating) 1-23-2005 Views: 3313

Employee Stock Options Hedging, SEC Rules and Taxes.
Preliminaries Some employees/executives desire to increase earnings, reduce risk, save "time premium" and defer taxes by selling (writing) listed exchange traded stock options against their Employee Stock Options.In some cases, employers...
(No rating) 1-22-2005 Views: 4571

Chance of Employee Stock Options Being Worthless at Expiration
The matrix below illustrates the probabilities of particular employee stock options being worthless at expiration. That is, if you believe the widely used pricing models, including the Black Scholes model, to be accurate.This matrix assumes that...
(No rating) 1-19-2005 Views: 1243

Premature Exercising ESOs Forfeits Part of Your Compensation Back to the Company
The predominant strategy that "Options Advisors" urge in managing Employee Stock Options is a naive form of "premature (i.e. prior to expiration) exercise" of the options. They then advise the sale of all or part of the stock...
(No rating) 1-19-2005 Views: 813

How to Calculate the Value of Your Employee Stock Options
Employees are often faced with the task of valuing theiremployee stock options:a) Prior to accepting employment, when incentive packages are offered, b) During employment when bonuses and incentives are offered, c) In the event of a divorce or...
(No rating) 1-19-2005 Views: 2334

Comparing Restricted Stock to Employee Stock Options
There is much in the news these days claiming the demise of Employee Stock Options with Restricted Stock taking over. Lets compare the two concepts.1. Restricted stock often has vesting periods similar to the vesting periods of employee stock...
(No rating) 6-19-2002 Views: 3520

Lehman, J.P. Morgan and Conflict of Interests at the N.Y. FED
Conflict of Interest is defined by Black's Law Dictionary as:" A term used in connection with public officials and fiduciariesand their relationships to matters of private interest or gain to them. Ethical problems connected therewith are...
(No rating) 6-8-2008 Views: 703

Naked Short Selling in Bear Stearns.... My Analysis
On June 30 there was an article in Vanity Fair called "BringingDown Bear Stearns" where the author, Mr. Bryan Burrough,makes his case that Bear Stearns was brought down by"a malicious attack by short sellers". He claims that...
(No rating) 5-19-2008 Views: 373

Bear Stearns Buy-Out... 100% Fraud
This article is about how Bear Stearns stock was artificially collapsed so that illegal insider traders would make billions and J.P. Morgan would be paid $55 billion of US tax payer money to shore up themselves and buy Bear Stearns at bankruptsy...
(No rating) 3-23-2008 Views: 22560

Strange Calculations in Google Options Expenses.
On page 91 of Google's 10-K Annual Report Dec. 31 2006, there are some very difficult to understand calculationsHeres an example:A. It is stated that during 2006, "8,128,214 stock options were exercised at a weighted average exerciseprice of...
(No rating) 5-20-2007 Views: 547

John and his Optionettes
Please see attachment showing John with his two beautiful daughters.
(No rating) 12-30-2006 Views: 1048

Executive Stock Options Re-loading
Untill just recently, I was puzzelled as to why highly intelligent executives would make substantially "premature" exercises of their executive stock options and immediately sell the stock. Although they rarely understand the full...
(No rating) 11-26-2006 Views: 3848

Back -Dating, Spring-Loading and other Executive Scams
At cocktail parties in Silicon Valley and on Yatchs in Sausalito, two new phrases have been added to sophisticates' vocabulary: Back-dating and Spring-loading. These are terms that describe two widespread methods of cheating shareholders and...
(No rating) 9-14-2006 Views: 4005

Can you legally sell "naked" calls in an IRA plan?
There is absolutely no IRS or other legal prohibition against selling naked calls in an IRA. Yes, most brokeragefirms will not allow it. But they have their reasons. They do not want to take the perceived risk that the sale may be imprudent.There...
(No rating) 6-25-2006 Views: 4105

Volatility: What does it mean and how do you calculate it?
Volatility is the annualized standard deviation of returns.What does that mean? Lets start with the definition of returns. Returns are the log to the base n of the selected price relatives. What's a price relative? A price relative is the ratio...
(No rating) 6-14-2006 Views: 1515

The Tax "Straddle" Rule Sec. 1092 and the "Constructive Sale" Rule Sec. 1259 do not constrain hedging ESOs with listed calls
These tax laws apply to US citizens in the United States only.Sec. 1092 Straddles: See(www.law.cornell.edu/uscode/26/usc_sec_26_00001092----000-.html) An arguement can be that Section 1092 will apply toExecutive or Employee Stock Options when the...
(No rating) 4-14-2006 Views: 8352

Using Listed Options on Positively Correlated Stock to Hedge Employee Stock and ESOs
Sometimes employers decide to prohibit hedging of ESOs or stock by the use of listed call options or futures on the employer stock. These employers believe that by making such prohibitions, the alignment of interests between the employee and the...
(No rating) 9-28-2005 Views: 635

Comparing options grants to cash compensation
Myth:A myth has been promoted that executives would rather receive substantially less cash than the theoretical value of ESOs. They claim that the theoretical values calculated by the Black Scholes model or lattice models overstate the true...
(No rating) 8-22-2005 Views: 2361

Exercising ESOs and Diversifying has its Costs.
"Diversify, Diversify, otherwise you'll end up like the holders of Enron or Worldcom" goes the refrain.Lets take a closer look.Companies want their employees to hold lots of companystock and options in every form and manner allowable....
(No rating) 7-25-2005 Views: 3018

Premature Exercising ESOs Forfeits "Time Premium" Back to Employer - Short Version
When ESOs are granted, the entire value consists of "Time Premium" because there generally is no "Intrinsic Value" at the grant date. This "Time Premium" is real value and not an illusion. The "Time...
(No rating) 7-15-2005 Views: 2884

Expensing Employee Stock Options
Companies are required to expense the theoretical values of employee stock options at grant day against their earnings. This is mandated begining January, 2006The question arises as to how these ESOs should be calculated at grant day.The SEC and...
(No rating) 1-19-2005 Views: 3500

Delay the exercise of your employee stock options and make an extra 50%.
DELAY THE EXERCISE It’s estimated that 14 million employees, executives and suppliers in the US own stock options, granted as compensation in lieu of cash. My estimate of the value of the options granted by the employers ranges from $60- $70...
(No rating) 1-19-2005 Views: 4415

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