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  #11  
Old 10-02-2007, 07:24 PM
stinkypete stinkypete is offline
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Default Re: Cashing in my options

[ QUOTE ]

generally this is correct.

but if you are exercising a tactical view, you have more than just stochastic modelling to go on, and the down probability of ending in a down state (in this case) is high enough that the ev lost by selling in time value is made up for in reduced intrinsic value if you view the stock as a loser.

alternatively, you could double up your view and sell the most ITM options and use some of the proceeds as margin to short the stock.

Barron

[/ QUOTE ]

the value of exercising now is obviously higher if you believe the stock price is going down.

but if you want to lock in what your options are worth, there's better ways to do it. shorting the stock is one possibility, as you mentioned.

the more obvious hedge would be to sell call options with the same strike prices and maturities as the options you hold. you would get more money this way than you would by exercising outright. you could also sell puts and short the stock, which would give you a smoother return than simply shorting the stock. you could get into trouble with margin calls if the stock rises a lot, but in that case you could always liquidate everything - the net result should still be better than exercising now, as by then the call option prices should be closer to the stock price minus the strike price.
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  #12  
Old 10-02-2007, 08:36 PM
DcifrThs DcifrThs is offline
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Default Re: Cashing in my options

[ QUOTE ]
[ QUOTE ]

generally this is correct.

but if you are exercising a tactical view, you have more than just stochastic modelling to go on, and the down probability of ending in a down state (in this case) is high enough that the ev lost by selling in time value is made up for in reduced intrinsic value if you view the stock as a loser.

alternatively, you could double up your view and sell the most ITM options and use some of the proceeds as margin to short the stock.

Barron

[/ QUOTE ]

the value of exercising now is obviously higher if you believe the stock price is going down.

but if you want to lock in what your options are worth, there's better ways to do it. shorting the stock is one possibility, as you mentioned.

the more obvious hedge would be to sell call options with the same strike prices and maturities as the options you hold. you would get more money this way than you would by exercising outright. you could also sell puts and short the stock, which would give you a smoother return than simply shorting the stock. you could get into trouble with margin calls if the stock rises a lot, but in that case you could always liquidate everything - the net result should still be better than exercising now, as by then the call option prices should be closer to the stock price minus the strike price.

[/ QUOTE ]

now thats the best idea yet. nice job pete.

if you are absolutely neutral on the stock, what is the optimal move here? sell calls on the same strikes and take the premiums risk free i think, right?

if you are negative on the stock then sell puts + short stock + sell calls on strikes?

if you are positive on the stock then hold all and do nothing?

thanks,
Barron
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  #13  
Old 10-02-2007, 09:03 PM
SuperWhale SuperWhale is offline
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Default Re: Cashing in my options

Are employees allowed to engage in "hedging trades"? I thought that public companies' employees were not. (I work for a public company and it says this in the employee handbook)

It makes sense not to be as it destroys the idea of the options as an incentive for continuous strong employee performance.
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  #14  
Old 10-02-2007, 11:10 PM
stinkypete stinkypete is offline
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Default Re: Cashing in my options

[ QUOTE ]

now thats the best idea yet. nice job pete.

if you are absolutely neutral on the stock, what is the optimal move here? sell calls on the same strikes and take the premiums risk free i think, right?

[/ QUOTE ]

if you think the stock and its derivatives are optimally priced, the optimal strategy in terms of absolute EV should still be holding since it minimizes transaction costs. in terms of maximizing sharpe ratio you would want to diversify and i suspect the best way to do that is by selling calls.

[ QUOTE ]

if you are negative on the stock then sell puts + short stock + sell calls on strikes?


[/ QUOTE ]

if i've thought this through correctly, selling puts and shorting the stock should be equivalent to just selling calls. so whether you're bearish or bullish on the stock shouldn't really matter in terms of the optimal hedging strategy. the difference is that with the sell put/shell short stock strategy you're essentially borrowing money now with the intention of paying it back when you finally exercise. that should have implications regarding the margin requirements which might be different for options and short selling, and i have no idea which strategy would end up working out better.

[ QUOTE ]

if you are positive on the stock then hold all and do nothing?


[/ QUOTE ]

yup, but of course you want to consider your portfolio sharpe ratio again... if you're bullish you'd naturally be holding more than you would otherwise.
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  #15  
Old 10-02-2007, 11:48 PM
pig4bill pig4bill is offline
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Default Re: Cashing in my options

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

generally this is correct.

but if you are exercising a tactical view, you have more than just stochastic modelling to go on, and the down probability of ending in a down state (in this case) is high enough that the ev lost by selling in time value is made up for in reduced intrinsic value if you view the stock as a loser.

alternatively, you could double up your view and sell the most ITM options and use some of the proceeds as margin to short the stock.

Barron

[/ QUOTE ]

the value of exercising now is obviously higher if you believe the stock price is going down.

but if you want to lock in what your options are worth, there's better ways to do it. shorting the stock is one possibility, as you mentioned.

the more obvious hedge would be to sell call options with the same strike prices and maturities as the options you hold. you would get more money this way than you would by exercising outright. you could also sell puts and short the stock, which would give you a smoother return than simply shorting the stock. you could get into trouble with margin calls if the stock rises a lot, but in that case you could always liquidate everything - the net result should still be better than exercising now, as by then the call option prices should be closer to the stock price minus the strike price.

[/ QUOTE ]

now thats the best idea yet. nice job pete.

if you are absolutely neutral on the stock, what is the optimal move here? sell calls on the same strikes and take the premiums risk free i think, right?

[/ QUOTE ]

Yeah, that's a good method. I wish I had done that when I worked for a chipmaker and had a buttload of unvested options. I knew about that sort of play but didn't think of it because I was "too close" to the situation.

OP, consider doing that for some of your unvested options as well.

BTW, nobody at Intel is REALLY sure of how long they'll be there. [img]/images/graemlins/smile.gif[/img]
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  #16  
Old 10-04-2007, 10:10 PM
RiverDancer RiverDancer is offline
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Default Re: Cashing in my options

I've never had employee stock options, as I'm a professional self-employed options traded. This means I don't know the rules for employee options as far as hedging and the like. I will give you a few pointers, though. First of all: Long Call, Short Put = Long Stock. This means that Long Put, Short Call = Short Stock. Long Call, Short Stock = Long Put. Long Put, Long Stock = Long Call. The list goes on but it's pretty easy to derive. Secondly, If you have options that are ITM and expire in several years it is probably a bad idea to exercise them. Options have intrinsic time value which makes them worth more than simply how much they are ITM. It would be a better idea to sell the options on the open market if that is allowed.

RiverDancer
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  #17  
Old 10-05-2007, 05:42 AM
pig4bill pig4bill is offline
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Default Re: Cashing in my options

Employee incentive options are not exchange traded. They are usually not vested when granted, but vest over a period of 4 or 5 years. They are incentive to continue working at the company and build value for the company. When you leave, you forfeit the unvested options but you are usually given a few months to exercise the vested ones. They really have no time premium that you can monetize. You can't sell them, you can only exercise them.
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  #18  
Old 10-05-2007, 12:14 PM
maxtower maxtower is offline
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Default Re: Cashing in my options

I would be really surprised if Intel stock matched market returns over the next 5-10 years.

How would I go about selling call options with the same strike prices and maturities as the ones I hold? Can this be done from a normal Scottrade brokerage account? Would this be smart if I believe that I'll be laid off in the future before the expiration dates?
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  #19  
Old 10-07-2007, 08:11 PM
Preem Preem is offline
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Default Re: Cashing in my options

[ QUOTE ]
I have about $20k in vested employee stock options with Intel. Any opinions on whether or not I should cash them out? Is there a good strategy for cashing out options?

If option grant A is above water at $20/share and grant B is above water at $22/share which should I sell first? I was thinking I should sell B first because then if the price drops to $22/share I would still be able to sell A for something.

[/ QUOTE ]
I think that a lot of people who responded to your post are confusing employee stock options with open market options. There are some huge differences.

There are even different kinds of employee stock options, the two most prevalent being incentive stock options (ISO) and non-qualified stock options (NQSO). The tax implications for these two types are very different, so make sure you know what kind of options you have and how the gains will be taxed. The main difference is that for NQSO, it's less advantageous, from a tax perspective, to exercise and hold for a year. I believe that both types trigger alternative minimum taxes (AMT).

If this represents a significant amount of money for you, I would strongly recommend that you consult with a tax accountant. You wouldn't believe how complicated things can get when AMT is involved.
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  #20  
Old 10-07-2007, 08:22 PM
Badger Badger is offline
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Default Re: Cashing in my options

From what I hear from AMD employees it sounds like things are pretty bad there. Does AMD slipping necessarily mean good things for Intel's stock? Or are you bearish on the whole industry?
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