| Capitalizing on rising option
values |
So far it looks as if
2004 will be a good year for the stock market and for
advisors who can effectively assist clients with
employee stock options (ESOs). Options granted in the
mid-90s are approaching expiration and these older
grants are now likely to be significantly in the money.
Even so, option holders are likely to wait until
expiration unless they can be shown how to make timely
diversification decisions that preserve and maximize
their wealth. For financial advisors, the key to this is
being able to illustrate the risk/reward trade-offs in a
client's stock option portfolio. This can be done quite
easily and over the 10-year life of most grants using
the Personal Option Profile© report created by StockOpter® Insight.
Taking options or restricted
stock
If you have clients who are now being
offered restricted stock grants in lieu of stock
options, consider the table below. We ran an analysis
using StockOpter® Pro that compared getting 10,000 stock options to
2,500 (4 to 1), 3,333 (3 to 1) and 5,000 (2 to 1)
restricted shares (RSPs). We assumed an option grant
price of $25 and applied various growth rates over a 10
year period. The values below represent the total
after-tax value of each grant over the period at annual
growth rates ranging between -20% and 35%.
The range of annual growth rates
where RSPs outperform options were from -8.93% to 2.60%
for 2,500 RSPs, -8.46% to 3.78% for 3,333 RSPs, and
-8.01% to 7.93% for 5,000 RSPs. Stock options
outperformed RSPs at any annual growth rates outside of
these ranges. Consequently, if your client expects their
company to grow over the long term, they are much better
off taking stock options instead of shares. For
additional perspectives and information on restricted
stock visit myStockOptions.com.
Other
news from NWSI
- Our initial Corporate Optionee
Services Certified Provider boot camp
is set for February 23-26
- We conduct monthly educational
webinars on both StockOpter® Insight and StockOpter® Pro to show users how to get the most out of these
tools
- If you don't have the time or expertise to render
sophisticated stock option assistance, check out
our back office services
- Licensed users of StockOpter® Pro will soon be
provided with a new release which includes the 2004
tax numbers
- If you are a user of StockOpter® Insight be sure
you have the current version (1.02) installed. To
check, go to the "about" tab in Insight. To update
to the current version click
here.
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