When we sell covered call and cash-secured put options, we are selling listed options or options listed on stock exchanges. There are several distinct differences between listed options and Employee Stock Options (ESOs). This article will focus in on these distinctions.
What is a listed option?
Also called exchange-traded options, these securities are sold on a registered exchange such as the Chicago Board of Options Exchange (CBOE) or Euronext. Listed options cover securities such as stocks, ETFs (exchange-traded funds), market indexes and commodities. All listed options have stated exercise prices and expiration dates.
An employee stock option (ESO) is a stock option granted to certain employees of a company. ESOs carry the right, but not the obligation, to buy a certain number of shares in the company at a predetermined price.
Placing a value on ESOs
This is extremely tricky. ESOs have no quoted values and values are based on theoretical pricing models. Many are granted with ten years in life from the granting date and there are no listed options that extend that far into the future (LEAPS may extend out thirty months but no longer). Employers are required to specify a theoretical value to ESOs on the granting date but many factors may make this figure inaccurate. Factors such as expected length of employment, expected holding time and volatility assumptions can skew accurate values.
ESOs and listed options: A comparison chart
There are several discerning features between employee stock options and the listed options we use for covered call writing and selling cash-secured puts. Not mentioned in the comparison chart is that employee stock options are generally given to management and key employees as a way of rewarding them in hopes of retaining them in the corporation. It is important to those who receive ESOs to understand these distinguishing characteristics.
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I’ve had a few inquiries about this and yes we do have this feature:
Upcoming live events
September 10th, 2016
Silicon Valley (San Francisco) California
8:30 AM – 12 PM
I am the 2nd of 2 speakers
September 29th, 2016
9 PM ET
Blue Hour webinar 2: “Using Put Options to Buy and Sell Stock”
FREE to premium members and available for purchase to general members
Registration links and more information to follow
October 17th, 2016 (originally 10/24)
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November 5, 2016
Plainview, New York
Saturday morning 3-hour workshop at the Plainview Holiday Inn. I am the only speaker and plan an information-packed presentation covering 5 actionable ways to make money or buy a stock at a discount using both call and put options. Discounted fee through 8/31/16.
Welcome to the hundreds of new premium members who recently joined our premium member community and thanks to all who have been loyal members over the past ten years.
Save the date: Our next Blue Hour webinar, FREE to all Premium Members, will be broadcast on 9/29/2016 at 9 PM ET. The topic is Using Put Options to Buy and Sell Stock. This a new presentation which will be presented for the first time on September 29th. Registration will open in a few weeks. You will receive notification.
Global rose slightly this week as did energy prices. The CBOE Volatility Index (VIX) fell from 14 to 11.98. This week’s reports and international news of importance:
- The United States created 151,000 jobs in August, fewer than the consensus estimate of 180,000. However, the data for July were revised up to 275,000 from 255,000
- The unemployment rate held steady at 4.9%
- By a vote of 61 to 20, Brazil’s Senate voted to remove President Dilma Rousseff from office on Wednesday after finding her guilty of manipulating the federal budget
- The European Commission ruled that the Irish government granted illegal state aid to Apple in the form of artificially low tax rates and has ordered the US tech giant to pay Ireland $14.5 billion in back taxes
- Despite the European Central Bank adoption of negative deposit rates just over two years ago, and quantitative easing over a year ago, eurozone inflation remains at extremely low levels. On Wednesday, core consumer price inflation was reported at 0.8% year over year, less than half the ECB’s target of near 2
- The eurozone unemployment held steady for the third month in-a-row in July, at 10.1%, more than double the US rate
- Global manufacturing was sluggish in August — with one exception. UK manufacturing rebounded strongly, reversing a decline in July data in the wake of the Brexit vote. The UK Manufacturing Purchasing Managers’ Index jumped 5 points to 53.3, the largest monthly gain in the index’s 25 year history
- The United States, in contrast, saw an unexpected contraction in the manufacturing sector last month, with the US PMI falling to 49.4 from 52.6
- China’s official and Caixin manufacturing PMIs converged near 50, while eurozone manufacturing growth eased to 51.7 in August from 52.0. PMI readings below 50 indicate contraction, while those above 50 indicate expansion
- Activity has been even more muted than usual in US stock markets this summer. August saw the fourth-narrowest trading range since 1928, according to the Wall Street Journal
THE WEEK AHEAD
- Eurozone retail sales are reported on Monday, September 5th
- The Reserve Bank of Australia meets to set interest rates on Tuesday, September 6th
- Eurozone Q2 gross domestic product is released on Tuesday, September 6th
- The Bank of Canada meets to set interest rates on Wednesday, September 7th
- The US Federal Reserve’s Beige Book is released on Wednesday, September 7th
- The ECB Governing Council meets to set policy on Thursday, September 8th
For the week, the S&P 500 declined by 0.68% for a year-to-date return of +6.12%.
IBD: Uptrend under pressure
GMI: 5/6- Buy signal since market close of July 1, 2016
BCI: Moderately bullish favoring out-of-the-money strikes 3-to-2
WHAT THE BROAD MARKET INDICATORS (S&P 500 AND VIX) ARE TELLING US
Alan ([email protected])