Employee Share Options

Jaybo1

Hi All,

I'm in an employee share options scheme at work and I've just had my first lot of options vest. The problem that I have is that I'm getting a lot of conflicting info as to what I can now do with my options, the main cause for disagreement seem to be as the current share price is lower than my "option" price. I have been told that this situation makes my options worthless at the moment as if I were to buy shares at the option price I'd lose money.

Please can someone let me know if this is correct?

Cheers!

jon3001

Jaybo1 wrote: »

I have been told that this situation makes my options worthless at the moment as if I were to buy shares at the option price I'd lose money.

Yes - that's correct. So you'd take the money back (probably with interest) rather than exercise the the options.

If you thought the shares were still worth buying then you could use said cash to buy them on the open market instead at a lower price.

Having said that I think the best use of these schemes is simply to bank whatever profit arises as the schemes mature and if you want to invest then do it in a diversified portfolio. Single shares are very risky. More so if they're your employer's - it a double whammy if things turn sour and you lose both your job and your capital.

Another option to consider is if the scheme is run every year and you have options that are still to mature. You could cancel the previous schemes and then get in at the new scheme at a lower price.

Jaybo1

Thanks Jon,

This wasn't a "sharesave" plan so I haven't been saving money into a plan to buy the shares with at the end of the term, it's a manager's plan where I'm just given the options so I don't have any money currently invested in the plan. So I take it that to exercise the options and keep the shares I'd have to actually spend money, I'd only make money as it were if I bought the shares and sold them at a higher price in the same transaction, correct?

Basically I have no intention of staying with the company, but have these share options that are now approved and vested so are safe, all I want to do is to get some money back from them, but if I have read everything correctly I can only exercise them when the price is higher than the option price?

jon3001

Apologies for the confusion! I'm not familiar with those schemes. But from what I know about options then yes - you'd lose money if you were to exercise the options.

Say you had an option to buy 5000 shares @ £2.00, you'd spend £10,000 in the process. However if the price on the open market was only £1.50 then your investment would only be worth £7,500 - making a £2,500 loss if you were to sell. You'd have been better off just buying the 5000 shares on the open market for £7,500.

Jennifer_Jane

Don't forget to allow for tax when you are doing your calculation. If the shares are currently worth less than 20% (or 40% if higher tax payer), then I wouldn't consider keeping the option, but if they are just a little bit down, then it may be worthwhile.

I think
Regards
Jen
x

opinions4u

When does the option expire?

Perhaps you are best sitting tight and seeing what happens to the share price.

If it moves favourably before the options expire, then you win. If not, c'est la vie.

Jaybo1

The options are good for three years, so what I'll have to do is just hold them until the price rises again which it will, they're for a retailer so now's not the best time for them!