Employee Stock Options And Diversification

In the 1970s, CEO compensation consisted of about 16 percent in stock options, but in 2011 that percentage had risen to 60 percent options and other equity awards. Similarly, many other employees have been awarded employed stock options (ESOs) in recent years. While it is possible to get rich by holding all of your ESOs, it is also risky. As a recent article in The Wall Street Journal points out, not only are you exposed to the risk of the company with the options, but through your salary as well. One strategy to consider is selling ESOs and buying a diversified portfolio or mutual fund. So when to sell ESOs? One investment adviser argues that they should be sold when the time value of the option is less than one-third of the total value. The argument for this trading trigger is at that point there is not a lot left to gain, but a significant amount to lose. http://online.wsj.com/article/SB10001424052702304458604577490580206500166.html?KEYWORDS=playing+your+options