In Getting Started In Employee Stock Options, authors John Olagues and John Summa provide a full understanding of ESOs (Employee Stock Options) and demonstrate how to make the most of them. Page by page this author team, a highly experienced options market maker and a professional trader, share essential information that you’re probably not hearing anywhere else. This book contains the keys to managing and hedging ESO opportunities in addition to important tax and valuation guidance appropriate for the highest executives to the non-officer managers and the newly arrived employee.
Estimates have been made that there are 10 million employees and executives in the United States, and millions more worldwide, who own employee stock options (ESOs). For a signiﬁcant number of these employees and executives, ESOs constitute a substantial portion of their ﬁnancial assets, and thus their net worth. Since holders of ESOs do not have the choice of selling these assets in a liquid market, as one might do with exchange traded options to lock in gains or reduce potential for losses, a plan for effectively managing ESOs over the long run must become the most prudent course of action.
Yet few employees and executives holding ESOs truly understand the actual and potential value of these assets. For these individuals, this book presents both a valuable source of accurate ESO information and, most importantly, the necessary tools for managing these wasting assets. The concepts and strategies explained in this book will allow grantees (holders) of ESOs, and their ﬁnancial advisors, to optimize management of ESOs, and to avoid the common pitfalls. The grantee will thus be in a better position to maximize the value of his or her ESO holdings, while effectively managing ESO risk and tax liabilities.
This book, however, differs in at least one crucial aspect from others written on the subject. In this book, the reader will find strategies fully explained, including detailed case studies, involving the selling of exchange-traded (listed) calls and buying of exchange-traded (listed) puts, which are aimed at hedging the risk of holding ESOs while maximizing their potential value. As is demonstrated throughout the book, use of exchange-traded options is the best (and only) method available for efﬁciently and effectively achieving risk reduction while preserving and potentially enhancing the ultimate value of ESOs.
- Preliminary Concepts and Definitions
- Options Valuation and Basic Concepts
- Risks of Holding ESOs (Unhedged)
- Tax Consequences of ESOs
- Straddle Rule and Tax Implications of Hedging ESOs
- Management of ESOs and Premature Exercises
- Comparison of Premature Exercises with Early Withdrawal from IRA
- Strategic Choices for Managing Your ESOs
- Basic Hedging Strategies Overview
- Constraints on Hedging: Real and Imagined
- Premature Exercise: Pros and Cons
- Putting It All Together: The 7 Percent Solution
- Does Hedging ESOs Undermine Alignment of Interests?
- Why Do Companies Want You to Exercise Prematurely?
- ESO Hedging Case Studies
- ESO Valuation Methods
- Comparing Restricted Stock with ESOs
- Google Transferable Options
- Introducing the New World Options Plan
- Understanding Executive Abuses
Getting Started In Employee Stock Options By John Olagues, John F. Summa pdf