Stock Options - help appreciated

[Gallen]

Hi guys,

Well Ive been slaving away at work for a number of years now (with the co. since 2004).
After 3 years, I was elegible for company shares! ( HOORAH!)
However, I have to hold on to these for a further 3 years until I can excercise them ( BOOOO!)

Anyway, now's that time of year and with that in mind, I'm a little confused.

I have;-

<Date Of Grant = 29 March 2007>
<Type = Ordinary>
<Stock = 125> <Option Price = 7.71> <Total Exercise Price = 964.69>
<Estimated Gain At Time Of Printing = £0.00>

I have chatted with the people dealing with this and from my understanding, if I excersie these I will get the "estimated gain at time of printing" which is basically fk all for the year 2007 (although it appears that I can still excercise this??!)

and:
<Date Of Grant = 28 March 2008>
<Type = Ordinary>
<Stock = 125> <Option Price = 6.02> <Total Exercise Price = 753.44>
<Estimated Gain At Time Of Printing = £205.31>

...which totals £205.31 (probably subject to tax etc etc, so might be able to take the family out for a Big Mac, possibly stretch to a Pizza Express).

However, I have the option to personally buy the shares for their value, which I believe again is the "Estimated Gain At Time Of Printing".

What's the pro's cons?
- I basically want to know how I get as much as possible?

Cheers,
G.

Edited by Gallen on Monday 21st March 15:03

[AlexB]

It looks as though you have been given options. In 2007 the option to purchase 125 shares at 7.71 each and in 2008 the option to purchase 125 shares at 6.02. I guess that the prices are pounds per share.

The question is what are the shares worth now? From the looks of it, they are currently worth about 7.67 per share (but this might have changed since their estimates!). This means that for the 2008 option you can buy 125 chares at 6.02 and immediately sell them for 7.67 which gives you a profit of 205.31. For the 2007 option the option price is higher than the current share value so you would be paying above market value to buy the shares - not sensible.

Your choice is to exercise the options (well the 2008 options) now, sell immediately and take the money, exercise the option and keep the shares, or wait for the share price to rise further before exercising the option. The tax treatment (capital gains and income tax) and trading costs for these scenarios differs and is worth checking to make sure you are happy. It will also depend if the company you work for is public or private and, I think, whether the option scheme is approved by HMRC.

If the share price goes above 7.71 then the 2007 option grant may come back into play. It is worth checking when you are allowed to exercise the options - is it only at this time of year, or any time after the three years is up?

Hopefully that makes sense.
Good Luck
Alex

[Gallen]

Thank you Alex. A great help.

We only have windows at certain times per year where we can sell the shares (unless, I assume, if we buy them outright). I'll find out when the next "window of opportunity" is!

G.

[louiebaby]

When do the options finally expire?

If you plan to exercise and hold onto the shares, by waiting until the last possible moment to exercise them you are insulated from losses. You are also not tying up cash in buying the shares.

Some option lingo:

Expiry: Last possible time you can use the option.

Strike: The price you can buy the shares at using the option.

Intrinsic value: The difference between the strike and where the shares are trading now. (Strike 100, shares at 120, intrinsic value 20. Options are 20 "in the money")

Options are fascinating things, allowing you to do all sorts of interesting things with dividends, interest rates and corporate actions, as well as speculate on stock movements or how volatile the stock will be. For you, think about whether you want the shares long term or not.

Since you know how much the 125 shares will cost with the option, if you have the money now, but want to insulate against stock movements down until the expiry of the option, put the cash you will need to use buy the stock at expiry into an ISA now, and get interest on it. You will then have the money if the options are still in the money at expiry, but won't lose if the stock price falls. (Like you would if you had bought the stock.)

If I'm rambling, tell me to shut up, or ask a direct question...