Re: [CANSLIM] USLB

From: "Robert Gammon" <rgammon51@yahoo.com>
Subject: Re: [CANSLIM] USLB
Date: Fri, 03 May 2002 07:06:22 -0500 (CDT)

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Jans,
  A specific example might be as follows

  As a mid to upper level manager, you are granted options to buy the company stock at 
current market price.  The options expire in 10 years.  You are getting options on 1,000 
share per year at a strike price of $25.

  Fast forward to 2002, 9 1/2 years after you were granted the options.  The current market 
price is $50, and the stock has split 3 times along the way.  Your 1,000 shares are now 
4,000 shares and the strike price on the option is $3.13.  Faced with getting or losing 
those profits, wouldn't you be exercising and selling the shares???   For the math 
challenged among us, thats nearly $187,500 before commissions and taxes and all I had to do 
was hang on. Most in this position don't merely hang on, they continue their outstanding 
job performance and the options get larger each year.

I picked a relatively mild example. something for a middle manager.  For the top 5 to 10 
individuals, multiply the numbers by 10 to 50.  To the recipient, this is 'free' money. 
Greater than 90% exercise for cash (i.e. sell the shares immediately)

If you exercise and hold, you MUST come up with the cash for the purchase (4000 * $3.125 = 
$12,500) PLUS the tax on the imputed gain (187,500 * 35% = $65,625) or about $78,000
So, I PAY $78,000 or I RECEIVE $121,875 (after taxes)???    I already have over 75% of my 
total net worth tied up in the company stock, and you want me to ADD to the position????  
I'll take the cash, thank you very much.

Robert

On Thu, 2 May 2002 22:01:12 -0400, Tom Worley wrote:

>Tom:
>
>     As I understand it, "in the money options" mean that the options are
>higher than the striking price.  And deep in the money-I presume-would mean
>that the options are a lot higher than the striking price.
>
>     If this is so, and the options are about to expire, than why don't the
>option-owners exercise them (ie. sell them)?
>
>jans
>
>
>
>In a message dated 5/2/2002 8:53:33 PM Eastern Daylight Time,
>stkguru@bellsouth.net writes:
>
><< Why would an insider sell if he thinks things are going great and will
>get
> better? Because often their entire net worth is tied up in one company, and
> they need to diversify. Also, they may have options about to expire that
>are
> deep in the money. Can't just exercise the options, need to sell stock to
> pay the immediately due tax bill.  >>
>
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