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Author: StockOperator Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 11013  
Subject: Re: Company Stock Option ? Date: 1/2/2006 4:37 PM
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Hi Wesr79 - welcome aboard.

It would be difficult to suggest a plan unless you provide us with a summary of your positions (not necessarily dollars amounts, but relative numbers - see point #3). Additionally, since the money involved is significant, I would suggest that you consult your CPA or a tax advisor who is knowledgable in the area of options / compensation. The members on this board can give you ideas and help you with critical and contrary thinking the final decision would have to be made by someone who understands your personal financial situation the best (that is yourself and your CPA).

Here are a few questions you should consider in your decision process -

1. What are the future prospects of this company and how do you think it reflects on the stock price. (Also read point #4)

2. Are the vested options a signficant portion of your net worth ? For example <15%, between 15-40%, between 40-65%, >65% ? Other than these options, do you have other financial investments in the company - like company stock and 401(k) that invests in company stock(or its subsidiaries). If yes, diversification is definitely a good idea, since you are already investing your career with your company and there is no need to over-invest your financial security with the company.

3. List down your options with the vesting date, expiration date, strike price, and quantity. (You do not have to share this information on this board, you can make up relative numbers e.g X options in Apr-2004, 1.5X options in Apr-2005). Consider the capital gains on each. Come up with what-if scenarios, like what happens if the stock price falls by 20% in the next 3 months etc - to get a understanding of your financial position in adverse condition.

3. What is the impact of selling / exercising the options on your taxes. You may have to pay capital gains when you sell.

4. If you believe the company stock is going down, what is your strategy to protect options that are in-the-money but are not vested (available at a future date)? Buying an equivalent number of PUTs is a good strategy to insure against future losses for a specific duration (similar to buying a car insurance).

5. If you decide to sell make sure you have a plan of what you will do with the sale proceeds. Many a times, the financial advisor suggests that you invest the proceeds in a particular fund (in which they get a sales fee) which may not fit with your financial goal. Not saying this is bad idea, but the excitement of having cash proceeds can lead to making bad decisions with that money subsequently.

I also recommend that you read the book "Consider Your Options" from Fairmark Press. It should be available at the your local library,

http://fairmark.com/cgi-local/SoftCart.exe/online-store/scstore/consider.html?E+scstore

Feel free to ask more questions :-)
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