Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: bambs who wrote (41326)	10/23/2000 1:07:19 PM
From: Eric	Respond to of 77400

Bambs You are missing something here. These options have a fixed issue price. There may be some conditions on them. Many of them are locked up for years. A very good friend of mine is a CTO at a high tech company and he gets lots of options to keep him there.....The catch is most of his options can't be exercised for 5 years! You have got to look at those periods within those options.

To: bambs who wrote (41326)	10/23/2000 2:17:28 PM
From: chic_hearne	Respond to of 77400

Hi Bambs, Look at the Cisco options like this. There are about 1 billion options out there. My guess is a pretty typical situation is an employee with about 10,000 options at $20 per share. These are the possible effects to the stock: 1) Employee exercises and takes $200,000 on margin and keeps the shares. Zero effect to the stock as long as the employee doesn't sell (not exactly zero effect because there is still dillusion to earnings, but no selling pressure as long as the employee holds). [ask former millionaires at MSFT if this is a good idea as some are now filing bankruptcy] 2) Employee exercises and sells half and keeps half. This is what the employee will need to do if they don't want to go on margin. Even at $20 per share, probably half would have to be sold because taxes will be so high on the gains. This is taking zero money out for fun, but still half will need to be sold to cover avoiding margin and paying taxes. 3) Employee exercises to make a big ticket purchase, ie, a house. 10K options at $55 would be $350,000. Half will go down the drain in taxes leaving them with $175,000. A down payment in the Valley at best. This is the other double edged sword with option gains. To get a measly $175,000 in cash, the employee has to dump $550,000 in stock on the open market. How the hell are people paying for $1 million homes in silicon valley? Simple, dumping stock on the open market. In other words, if there are one Billion options out there this represents about $55 Billion in stock, and rises a Billion with each point Cisco rises. The best case scenario I can see is that half the stock gets dumped on the open market and half is kept. This represents $27.5 Billion of downward pressure on Cisco over the next few years. New inflows of $10 Billion per year will be needed just to maintain the current Cisco price, assuming everything else is equal. It's called monetizing shareholder ignorance. chic