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.

Strategies & Market Trends : WR's Momentum Trades -- Ignore unavailable to you. Want to Upgrade?

To: Lola who wrote (9720)	3/17/2001 9:51:38 PM
From: ChrisJP	Respond to of 11130

Yes Lola, I recall the article now. The gist of the story was that the bank/lending institution was accepting the underlying stock as collateral, since the MSFT's track record until last year was nothing but up. As I recall, the article described it as almost a "standard practice" by the lender. It appears that if they exercised the options at peak ($115) and decided to bail out in agony at the low in late December ($40), that represents a 65% decline. I'm not an expert of the tax rate, but I'm guessing they were forced to sell the options for about the same amount as the tax bill. So they broke even, options wise. But then they had the debts. :-( In the case of MSFT, their situation seems like just bad timing, and is really unfortunate. But, in the case of the recent set of momentum technology stocks to bite the dust, many of these stocks were down over 60% by November -- at or below break even. And now -- jeez, I think they're all down over 80%. So I'm thinking that the article we're discussing is describing a situation that is not simply a bad timing exception. BTW, I've been thinking about the story all day. The implications/ramifications could be pretty serious .... like a Depression in Silicon Valley for a year or two, as people deal with their debts, and adjust their consumption to match their lowered income. Fortunately, it ain't like the oil sector Depression of the 1980s -- as I'm sure you're aware, demand for hi-tech skills is still strong -- now those of us who want to hire don't have to deal with applicants who think they deserve to be millionaires after one year just because they know how to program in Java ! Regards, Chris

To: Lola who wrote (9720)	3/20/2001 6:52:48 AM
From: ChrisJP	Respond to of 11130

Hi Wayne and Lola, I got a more definitive answer back from my source at MSFT: According to him: "The AMT is based on paper profits on the day you exercise the option and buy stock -- even if the stock later crashes and you lose the profits. It's triggered when you exercise an incentive stock option in one year and hold the stock into a later calendar year." "The AMT applies to incentive stock options granted to employees, but not to the more common non-qualified stock options, which can be granted to both employees and non-employees, such as outside consultants. The two kinds of options have different tax consequences." MSFT grants non-qualified options. Does that make you feel any better? Regards, Chris