Strategies for protecting stock options/stock plan granted shares

[patientrenter]

I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.

[equalizer]

[quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296

[equalizer]

[quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296

[equalizer]

[quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296

[equalizer]

[quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296

[equalizer]

[quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296

[Coronita]

[quote=equalizer][quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296%5B/quote%5D

Thanks equalizer. I’ll read up on this…
Trying to hedge against restricted stock grants were part of a comp package and perf bonus that I chosen lieu of additional cash comps (shares, not options). Just looking to mitigate losses on it (in this economy).

Come on, no QC’s or Illumina folks????

[Coronita]

[quote=equalizer][quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296%5B/quote%5D

Thanks equalizer. I’ll read up on this…
Trying to hedge against restricted stock grants were part of a comp package and perf bonus that I chosen lieu of additional cash comps (shares, not options). Just looking to mitigate losses on it (in this economy).

Come on, no QC’s or Illumina folks????

[Coronita]

[quote=equalizer][quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296%5B/quote%5D

Thanks equalizer. I’ll read up on this…
Trying to hedge against restricted stock grants were part of a comp package and perf bonus that I chosen lieu of additional cash comps (shares, not options). Just looking to mitigate losses on it (in this economy).

Come on, no QC’s or Illumina folks????

[Coronita]

[quote=equalizer][quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296%5B/quote%5D

Thanks equalizer. I’ll read up on this…
Trying to hedge against restricted stock grants were part of a comp package and perf bonus that I chosen lieu of additional cash comps (shares, not options). Just looking to mitigate losses on it (in this economy).

Come on, no QC’s or Illumina folks????

[Coronita]

[quote=equalizer][quote=patientrenter]I don’t know if my company restricts me from betting against the company, whether it’s a hedge of my compensation or not. But I couldn’t seriously defend it in front of my company’s CEO, so I wouldn’t do it.[/quote]
My comments are for a public company only.

Short story is that it would imprudent at best to not hedge, especially a tech company. There could be 50% chance that ESO expire worthless, unless you are lucky enough to get daily repricing (I think the SEC doesn’t care for that anymore).

I’m sure that there are many employees who didn’t hedge 10 years ago and forwent financial security for their family. If execs believe that hedging is unethical, then how can they defend selling their stock to poor grannies right before stock tanks??

“Seldom do companies have a complete ban on using options to hedge the risks of holding ESOs. But there are cases of companies who believe hedging defeats the purpose of the ESO grant. Allegedly, these companies want to forge an alignment of interests. Those same companies allow and sometimes encourage the premature exercise of ESOs and sale of stock, which reduces the alignment of interests much more than hedging the ESOs. No reasonable person will argue that an employee who owns no ESOs or stock has a greater alignment of interests than an employee who owns substantially in the money ESOs and is short out of the money long term calls. But that is exactly what the design of some plans assumes, when restricting hedging.”

“Are there SEC Constraints on hedging?
SEC Section 16 b and Section 16 c of the 1934 Securities and Exchange Act apply only to officers, directors and owners of 10% of company equity. SEC Rule 10 b-5 applies to all buyers and sellers of securities”

http://www.optionsforemployees.com/articles/attachment.php?id=296%5B/quote%5D

Thanks equalizer. I’ll read up on this…
Trying to hedge against restricted stock grants were part of a comp package and perf bonus that I chosen lieu of additional cash comps (shares, not options). Just looking to mitigate losses on it (in this economy).

Come on, no QC’s or Illumina folks????

[stansd]

I’ve thought about this quite a bit on my own account. The best hedge against owning an option is to, well, sell it. You can’t do that directly through your employer, but you can write call options on the market (with a strike and maturity as close as possible to the ones you own from the company). If the company does well, you owe on your written calls and make money on the company calls. If it does poorly, you pocket the premium on the written calls, which hedges your downside. you’d have to see an accountant because there are potential tax consequences if the government considers it a wash sale.

Also beware of getting fired because you could lose the offset to your position in the market.

Other potential options as mentioned are to short the stock-not recommended, or to buy high strike puts on the stock, which is an expensive strategy.

Would write more, but have to get my daughter to bed.

Stan

[stansd]

I’ve thought about this quite a bit on my own account. The best hedge against owning an option is to, well, sell it. You can’t do that directly through your employer, but you can write call options on the market (with a strike and maturity as close as possible to the ones you own from the company). If the company does well, you owe on your written calls and make money on the company calls. If it does poorly, you pocket the premium on the written calls, which hedges your downside. you’d have to see an accountant because there are potential tax consequences if the government considers it a wash sale.

Also beware of getting fired because you could lose the offset to your position in the market.

Other potential options as mentioned are to short the stock-not recommended, or to buy high strike puts on the stock, which is an expensive strategy.

Would write more, but have to get my daughter to bed.

Stan

[stansd]

I’ve thought about this quite a bit on my own account. The best hedge against owning an option is to, well, sell it. You can’t do that directly through your employer, but you can write call options on the market (with a strike and maturity as close as possible to the ones you own from the company). If the company does well, you owe on your written calls and make money on the company calls. If it does poorly, you pocket the premium on the written calls, which hedges your downside. you’d have to see an accountant because there are potential tax consequences if the government considers it a wash sale.

Also beware of getting fired because you could lose the offset to your position in the market.

Other potential options as mentioned are to short the stock-not recommended, or to buy high strike puts on the stock, which is an expensive strategy.

Would write more, but have to get my daughter to bed.

Stan

[stansd]

I’ve thought about this quite a bit on my own account. The best hedge against owning an option is to, well, sell it. You can’t do that directly through your employer, but you can write call options on the market (with a strike and maturity as close as possible to the ones you own from the company). If the company does well, you owe on your written calls and make money on the company calls. If it does poorly, you pocket the premium on the written calls, which hedges your downside. you’d have to see an accountant because there are potential tax consequences if the government considers it a wash sale.

Also beware of getting fired because you could lose the offset to your position in the market.

Other potential options as mentioned are to short the stock-not recommended, or to buy high strike puts on the stock, which is an expensive strategy.

Would write more, but have to get my daughter to bed.

Stan

[Author]

Posts