The vast majority of employees holding stock options have

no idea of:

a) the nature of ESOs.

b) the value of, or

c) the method to manage those options to get the most

for themselves.

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7% Solution

There is a simple strategy called the 7% solution that

answers most of the questions of what to do to

maximize the value of the ESOs to the employee.

The article, "Exactly How to Manage your Employee Stock

Options", posted on this site, illustrates the strategy in detail.

Simply, the employee goes into the listed options market

and "writes" LEAPs equal to 7% of his ESOs on the grant day,

then increases the "written" amount by 7% yearly.

If he owns company stock in retirement plans or outright,

he should systematically sell more listed options against his

stock. It's that simple, although executing the strategy

may require a bit of effort and help from Truth In Options.

7%  Solution Advantages 

To the employee.

a) Reduces risk.

b) Increases returns.

c) Delays and reduces taxes.

d) Retains 100% of the "time premium" and often more.

e) provides the employee with a systematic method of

efficiently exiting his employee stock options.

f) the employee will seldom have to come begging to have his

out of the money options bought by opportunistic investment

bankers at fire sale prices.

To the employer

a) Creates happier employees in neutral and down stock

markets.

b) There would be much more loyalty if the options go

underwater or in-the- money because the employee

perceives that he can reduce risk and taxes and can

concentrate on his job and his company.

c) Increases longivity at firm due to the hedge.The employee

will understand the value of ESOs and have a tendency to

stay longer to avoid costly premature exercises. 

d) Reduces the tendency of employees to speculate on the

price of the stock.

e) Avoids any possible claims of 10 b 5) violations.

f) Reduces the company's need to reprice options or buy back

underwater options.

g) Avoids the type debacle that Microsoft performed in

conjunction with JP Morgan's purchase of out of the money

options.

h) Makes the granting of options superior to granting

restricted stock.

i) Granting ESOs actually reduces the volatility of the stock.

J) The employee who hedges effectively perceives that he is

getting much more value from his options. The Employer can

offer less options to employees due to the perceived enhanced

value of the ESOs to the employee. This results in lower

accounting costs to the employer and greater earnings.

John Olagues   olagues@hotmail.com 

www.optionsforemployees.com