# What to do with company issued options?



## bonkerrs (8 August 2007)

Hi all

I have some company issued options which will be coming into the exercise period (between 05/11/2007 - 04/11/2011). I don't know whether it's a good idea to say which company or not so to be safe I won't mention it.

Here are the details:
Exercise Price: 20.68
No of Options: 466

The below are what I can do with the options (on the back page of the statement):
1. Convert your options to fully paid shares – funded by yourself
2. Convert your options to fully paid shares – funded by Margin Loan
3. Convert your options to fully paid shares – funded through your Broker of choice

If the share price is currently at 25.00 and I convert the options to fully paid shares. What (in layman's terms) does each mean... What does it mean "convert your options to fully paid shares"?


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## doctorj (8 August 2007)

This thread has been moved to the beginners lounge.


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## Morgan (8 August 2007)

Bonkerrs,

Below is NOT financial advice, but may help you to understand your options with your options (pardon the pun 

An "option" is basically the "right" to purchase a fully paid share for a specified price at a specified time.

I presume that you have received your options for free due to owning fully paid for shares in the company in question.

Note that it is also possible to buy options for many companies. In effect this is 'reserving' shares at a particular price for you at a certain time in the future (the exercise period). If you do not excercise the options within the period, they expire worthless.
Many types of options can also be sold to someone else if you decide you do not want them. 

In your example; your "options" are giving you the right to purchase (up to) 466 fully paid shares in the company for a price of 20.68 at anytime during the date range mentioned. 

Only you of course can decide if you want to buy the shares. The 1,2,3 that you have listed are just different means to the same result (owning the shares) so you would have to seek your own financial advice.

Of course if the market price of the stock is lower than the option price during the excercise period then excercising the options may not be a good idea.

If the market price of the stock is much higher than the excercise price during the excercise period, another course of action available is to sell enough of your regular shares in the company to pay for the excercising of the options. That way, for no cash outlay you can end up with either more shares in the company, or the same number of shares in the company and some bonus cash in your hand.
If you look through the company announcements for many companies, you will often see directors doing something like that. Eg selling 10,000 $1 shares to excercise 20,000 50c options.


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## bonkerrs (8 August 2007)

doctorj - beginner's lounge it is. I wasn't sure where to post initially as it is derivaties specific query but also a beginner's query!

Thanks Morgan for the reply.

Have I got this right?....
Exercise Price: *20.68*
No of Options: *466*
Current share prices:*25.00*

Therefore, we (haha!) can exercise the options in the exercise period. This means we can buy 466 shares at a reserved price of 20.68 each, as a result we have received a bargain of 4.32 per share ($25.00 - $20.68).

Now we can either sell them to realise a profit ($2013.12 if the company's share price remains at 25.00 at the time of transaction) or hold them in hopes that the company's share price goes up.

If I've got the general gist of it. Where do I go to do this? Who are some options trading people that I can do this with? And approximately, what kind of fees am I looking at paying for the transaction?


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## bonkerrs (9 August 2007)

Quoting myself...


> ...Where do I go to do this? Who are some options trading people that I can do this with? And approximately, what kind of fees am I looking at paying for the transaction?



Anyone!?

Also, besides the 1. 2. 3. choices on the OP, is there another way of doing this?


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