| | | Good reading in the previous post. One question one may have is 'why'...why now?'. As buying is a strong signal that the insiders are every bullish, why are they buying or exercising their options now?
If buying on the open market, it's clear. They own the stock outright.
For options, it is an 'option to buy' Typically, corporate insiders are given qualified options, which there is an 'option' price and a stated 'before than' date. What we've seen recently are I believe qualified options, that have a buy-price and a NLT date. But still, why are they exercising them now? By exercising them now aren't they faced with immediate tax consequences? Couldn't they wait until they are sure the price will rise? I may be wrong, but a driving issue here is that shares purchased via a qualified option maintain that the buyer hold their shares for a given period, typically 1 year. (This is the profile that I have been given a few times in my career.)
By exercising them now, they shorten start date of the period to the date of exercise they are required to hold them before selling. As can be seen in the recent exercise activity by each of the principals, upon sale of the company or other activity that increases share price higher than we see today, they could be greatly rewarded after the mandatory holding period is satisfied. Also, the tax liability is imposed on the option price that they exercise, not any price after the option
is either satisfied or expires.
This is my opinion of why they are taking apparent risks and satisfying their IRS responsibilities now. I may be wrong and make your own investment decisions. |
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