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  #1  
Old 10-02-2007, 12:57 PM
maxtower maxtower is offline
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Default Cashing in my options

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.
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  #2  
Old 10-02-2007, 01:50 PM
DcifrThs DcifrThs 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 ]

when do your options expire? do they?

Barron
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  #3  
Old 10-02-2007, 02:14 PM
maxtower maxtower is offline
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Default Re: Cashing in my options

They expire years from now. I have about 8 different grants with prices between $15 and $30.50. The first ones expire in 2011, and the last ones expire in 2015.

I am bearish on the company (should I be). The stock is trading at a 27 PE ratio and has been on a good run since winter. I think a 27 PE is too high for Intel which is realistically no longer a growth stock. Any future earnings are going to be grown through cost reductions at this point. They don't have any good strategy to prevent the complete commoditization of their current product, and there aren't any new products on the horizon that would really boost the bottom line. I would love to see them become a big player in cell phone processors, but they haven't made many inroads so far.

The upside is that intel moves with the market these days, so if the S&P and Dow continue to do well, Intel shares could rise as a result. I don't believe the fundamentals point towards owning these shares however.
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Old 10-02-2007, 02:23 PM
DesertCat DesertCat is offline
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Default Re: Cashing in my options

Also, how long do you plan on staying with INTC? Typically employee options expire in ten years or when you leave. If you believe you can hold them for a long period you would be giving up some significant option value. For example, the Jan 2010 $20 call options are selling for almost $9, effectively you would be selling more valuable (if the expiration can be longer than 2.5 years) options for only $6 and paying taxes to boot.

For example of the benefit of long dated options, if you think INTC is fairly valued now, and will appreciate at 10% per year, then you might expect it to trade around $35 in three years, making exercising your $20 options worth $15 instead of $6. That's a 150% increase in option value froma 35% increase in the underlying stock, showing how the leverage of options can pay off over long periods.

This assumes you are comfortable estimating Intel's real value. If you think it's significantly over valued then selling the options is probably reasonable. If you can't estimate Intel's value, then think about it as a portfolio allocation problem.

My usual approach to employee options was to view them as a component of my entire portfolio, i.e. my net worth. If options are a large percentage of your savings, and are greater than a years income, you should think about lowering their allocation. If they represent a small portion of your earning power or net worth, then holding as a speculation is probably fine.

And if you ever think your employer is struggling and your job is at risk, you should always lower exposure to their stock. You don't want the stock to crash at the same time you get laid off.

Also it's been a long time since I dealt with employee options, but the usual strategy was to exercise, and hold a year to get long term capital gains. This burned a lot of people during the bubble. Not sure of the correct tax strategy today but you should research the tax implications.
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  #5  
Old 10-02-2007, 02:25 PM
stinkypete stinkypete is offline
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Default Re: Cashing in my options

[ QUOTE ]

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 ]

you should sell A first.

if the price stays above $22 for all your sales, you make the same amount of money regardless of the order you sell them in.

if the price is above $22 now and below $22 a year from now, you make more money by selling A now than by selling B now and A a year from now.

always sell the options with the lowest strike price first (if they have the same expiry date).

generally, if your options are just barely in the money and you have a long way to go until they expire, you should hold them. if they're well into the money, you should probably sell and diversify.


in general, if you're not worried about diversification and want to maximize your EV, you should hold them until just before they expire. holding onto them is similar to being in any other leveraged position, except you still have the chance to make money after your position goes underwater.

in other words, the options are worth more than the difference between the stock price and the strike price. that difference is greater the further you are from expiry, and the closer the stock price is to the strike price.
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Old 10-02-2007, 02:26 PM
DesertCat DesertCat is offline
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Default Re: Cashing in my options

[ QUOTE ]
They expire years from now. I have about 8 different grants with prices between $15 and $30.50. The first ones expire in 2011, and the last ones expire in 2015.

I am bearish on the company (should I be). The stock is trading at a 27 PE ratio and has been on a good run since winter. I think a 27 PE is too high for Intel which is realistically no longer a growth stock. Any future earnings are going to be grown through cost reductions at this point. They don't have any good strategy to prevent the complete commoditization of their current product, and there aren't any new products on the horizon that would really boost the bottom line. I would love to see them become a big player in cell phone processors, but they haven't made many inroads so far.

The upside is that intel moves with the market these days, so if the S&P and Dow continue to do well, Intel shares could rise as a result. I don't believe the fundamentals point towards owning these shares however.

[/ QUOTE ]

Sorry, cross posted as you were posting. This sounds like a sell. Selling your lower cost options probably is the best strategy as if Intel goes on a run you'll still profit from your higher cost options.
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  #7  
Old 10-02-2007, 02:26 PM
DcifrThs DcifrThs is offline
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Default Re: Cashing in my options

[ QUOTE ]
They expire years from now. I have about 8 different grants with prices between $15 and $30.50. The first ones expire in 2011, and the last ones expire in 2015.

I am bearish on the company (should I be). The stock is trading at a 27 PE ratio and has been on a good run since winter. I think a 27 PE is too high for Intel which is realistically no longer a growth stock. Any future earnings are going to be grown through cost reductions at this point. They don't have any good strategy to prevent the complete commoditization of their current product, and there aren't any new products on the horizon that would really boost the bottom line. I would love to see them become a big player in cell phone processors, but they haven't made many inroads so far.

The upside is that intel moves with the market these days, so if the S&P and Dow continue to do well, Intel shares could rise as a result. I don't believe the fundamentals point towards owning these shares however.

[/ QUOTE ]
sounds like you've thought it through and have a good handle on the situation.

another thought is that despite commoditization, huge growth in the demand for computers from china/india in teh future could still push the share price up. 27xearnings though is a bit high i agree.

only advise i could intelligently give is "don't sell the $30 options first" lol.

sounds like you could sell the most in the money now and work backwards given your view of the company.

Barron
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  #8  
Old 10-02-2007, 03:43 PM
maxtower maxtower is offline
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Default Re: Cashing in my options

Thanks for the help. I am probably going to sell some portion of them since I believe intel is overvalued currently. I'll let the rest ride. [img]/images/graemlins/smile.gif[/img]
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  #9  
Old 10-02-2007, 03:52 PM
DcifrThs DcifrThs is offline
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Default Re: Cashing in my options

[ QUOTE ]
[ QUOTE ]

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 ]

you should sell A first.

if the price stays above $22 for all your sales, you make the same amount of money regardless of the order you sell them in.

if the price is above $22 now and below $22 a year from now, you make more money by selling A now than by selling B now and A a year from now.

always sell the options with the lowest strike price first (if they have the same expiry date).

generally, if your options are just barely in the money and you have a long way to go until they expire, you should hold them. if they're well into the money, you should probably sell and diversify.


in general, if you're not worried about diversification and want to maximize your EV, you should hold them until just before they expire. holding onto them is similar to being in any other leveraged position, except you still have the chance to make money after your position goes underwater.

in other words, the options are worth more than the difference between the stock price and the strike price. that difference is greater the further you are from expiry, and the closer the stock price is to the strike price.

[/ 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
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  #10  
Old 10-02-2007, 04:04 PM
spider spider is offline
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Default Re: Cashing in my options

FWIW, as I don't have any practical experience with employee options programs, but I'd sell it all ASAP if you are bearish on the company. In general, diversification argues against working for a company and holding stocks/options in that company since the two are going to be so strongly correlated. Combine that with your bearishness, and you really want to distance yourself from Intel the stock as much as possible.

But that's ignoring possible tax consequences which you wouldn't want to do obv.
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