Cashless Exercising of Stock Options
by
Gregory Grant
Stock options have always been a way that companies could offer extra compensation to valued employees. But with the emergence of dot com companies, the practice has really caught on. One of the problems with exercising stock options, that is turning them into actual shares of stock or cash, often requires a large upfront payment. Even if you have the money, you may not want to spend it in that way.
"A cashless exercise of option essentially, is you getting the right to be able to exercise your option and simultaneously sell it without having to come up with the cash in order to do that," says James Cotto of Merrill Lynch.
Cashless exercising is when you go to a brokerage firm, and in effect borrow the money to exercise the options, using the options themselves as collateral. There is usually a cost associated with this, but it allows you to diversify your portfolio without that upfront payment.
"There is a cost associated with cashless exercise of options and that would be the transaction cost if you were intending to sell the stock upon exercising and also the finances charge that's associated with the period from which you exercise the options until the securities are delivered to the financial service firm," says Cotto.
Many companies these days rely on stock options to attract top-flight talent. Now with the use of cashless exercising of these options, it makes them a much more attractive part of an employees compensation package.
In recent years, companies have flocked to the web to set up dot.com sites. Initially retail companies caught the attention of investors and consumers alike.
When to sell a stock is as important as when to buy a stock. The investor that goes beyond just looking at the financial pages will find that this kind of in-depth research will pay off in helping to make wiser investment choices.