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One of the most rewarding benefits of working for a publicly traded company is when the employee is granted company stock options. Company stock options offer an employee a way to participate in the growth of his or her company. They are also one of the most confusing and least understood among company benefits.


An Employee Stock Option Plan (ESOP) is a type of plan that enables employees to invest primarily in employer listed stock. On occasion employees risk accumulating too much of their personal assets invested into their employer’s company listed stock. This usually results in an extremely undiversified portfolio. In certain circumstances the company listed stock may be doing well and the employee may not want to sell it to diversify. Through the strategic use of an option Collar, simultaneously written call option and the purchase of a protective put option, EBFP can construct a floor and a ceiling on the price of a listed stock that will “Collar” the outcome into one of three PREDICTABLE Outcomes. This will provide price predictability during the option holding period into one of three possible outcomes, provided the securities are held to expiration:




In the event that the stock price falls below the strike price of the protective put, the employee may exercise the right to put (SELL) the stock at the floor price regardless of how low the price falls.




In the event that the stock price rises above the strike price of the covered call, the employee will be obligated to sell the stock at the ceiling strike price regardless of how high the price rises.




Employee gets to keep the listed company stock plus any premiums received from the sale of the call, if any. Employee can then decide whether to sell the stock, to diversify, or to do another collar in order to extend the holding period.




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There a few other areas to consider regarding stock option planning. 144 filings to the SEC may be required to avoid breaking any insider trading regulations and must be in proper order prior to executions.


When your options are exercised taxes may be due IMMEDIATELY upon excising of an option. This can result in a large lump sum to become due to Uncle Sam. Instead of selling margin-able securities to cover taxes, Margin-able Securities may be held in a Margin Account.  Tax bills may be settled with the use of a Margin Loan against the value of the Margin-able Securities. Thereby the Employee can hold the maximum amount of shares. Consideration must also be given to which options to exercise, as well as when to sell the shares. Margin accounts may not be appropriate for all investors. Clients should be aware that sometimes you can lose more funds than you deposit in a margin account. A broker/dealer can force the sale of securities in your account, without contacting you and you will have no say in which securities are sold. A broker/dealer can increase the house maintenance requirements on your position without advance notice. You are not entitled to an extension of time on a margin call.