On exercising options, most brokers market a little product called the Simultaneous Exercise and Sale.
This is an option that usually gets a lot of action with younger employees who don't have a ton of money to exercise the options. The brokerage firm, for a small <cough, cough, hack> fee, will exercise your options and sell them at the same time, and take care of all the cash flows back to the company.
What got particularly heinous last year when the dot com thing was at its peak was that a lot of brokers recognized that they could make even more money if they exercised the options, and instead of selling the necessary shares they lent the employee the money to pay the company, using the shares as collateral. After all, the firm's analysts were recommending the stock, so it was much better <cough cough hack> to margin those shares rather than sell them.
Alas, as we all know, most all of the technology shares dropped, often much more than 50%. Thus, the margin disappeared and the employee was left with nothing. On top of that, this coming April, the employee will see a tax bill on income that he/she never saw. |
