This article discusses
employee stock option - exercise stock options.
Finding the cash to exercise a stock option is a common problem, even
for high-salaried executives. One technique: The executive can exchange
stock already owned for the new share options.
How it works: An executive wants to purchase 1,000 shares of the company
stock. The option price is $20 a share when the market price is $40 a
share. The executive already owns company stock for which he paid $10 a
share. The executive exchanges 500 of the old shares at their market
value of $40 each ($20,000) for the 1,000 new shares (also $20,000).
See
stock options
for more information.
Result: The employee must treat the difference between
the new shares' option price and their market value ($20,000) as
compensation.
Comparison: An employee who purchases the new stock for cash has the
same taxable gain. But $20,000 also has to be paid for the stock. Net
cash outlay: $ 30,000. That's three times the cash that would have been
necessary in a stock exchange.
The IRS has approved option stock exchanges. The law specifically
permits use of corporate stock to pay for stock in the same corporation
acquired on exercise of an incentive stock option. And the Securities
and Exchange Commission has said that these exchanges may be undertaken
by corporate insiders.
Now to another matter: The R&D Indicator. The amount
of money a corporation spends on research and development is a good
guide to its earnings prospects. Generally, the higher the expenditure
in relation to sales, the greater the company's emphasis on new-product
development. Benchmark: 5 % of annual sales spent on research is
considered a sizable commitment to research spending.
To
Employee Stock Option - Exercise Stock
Options - Top
What To Watch Besides The Dow. Too many investors rely
exclusively on the Dow lones Industrial Average for a quick view of what
the market is doing. But the Dow reflects only stock price changes of 30
large, mature companies. Their performance does not necessarily reflect
the market as a whole. The Dow should be supplemented with these
indexes:
• The Over-the-Counter Composite Index gauges the cumulative performance
of over the-counter issues. It points to a bull market when it outpaces
the Dow lones Industrial Average and to a bear market when it is weaker.
• TRIN, an acronym for the trading index, measures the relative volume
of rising and declining issues. The market is bullish when the TRIN
falls from a reading of above 1.20 to below.70 during one day of
trading. It is bearish when the TRIN goes from below .70 to 1.20. A
reading of 1.00 shows an even relationship between advancing and
declining stocks.
• The Quotron change, named for the company that developed it, measures
the daily percentage change for all issues on the New York Stock
Exchange (the QCHA index) and the American Stock Exchange (QACH). It
gives an excellent picture of what the market is doing in broad terms.
Mutual funds track more closely with the Quotron change than the Dow
Jones Industrial Average.
• The Dow Jones Transportation Average is a generally reliable lead
indicator of intermediate trends. The Dow Jones Utilities Average
reflects income- and interest-sensitive stocks. It's a good long-term
lead indicator.
• In a bull market, the total number of shares traded expands on days
when advances outpace declines. The opposite occurs in a bear market. A
sign of market reversal is a high-volume day when the market moves in
one direction all morning, then turns around.
Source:
Consumer Information Center
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