Right method to off-load NFLX stock options

Discussion in 'Options' started by simpleThought, Mar 5, 2018.

  1. ET180


    I'd hate to throw away the time premium left on those options. When I had non-tradeable options, I sold naked calls against them effectively turning them into calendar spreads. As ironchef said, some banks or credit unions might work with you on finding a way to leverage the time premium by granting a loan against the shares. You could then use that to sell naked calls. If it goes too far ITM, then be prepared to sell the shares and close out the position.
    #31     Mar 5, 2018
  2. Totally agreed. I have been commiting that crime on time premium for lack of knowledge so far.

    ITM close out makes sense as well.
    #32     Mar 5, 2018
  3. ajacobson


    They are vested employee stock options ? Are they long in your account ? What brokerage house does your employee option program ? Ask them what your firm allows - the fact that they are vested doesn't necessarily mean you are unrestricted.
    Do you more unvested with the program ? Then you really need to cautious - the best idea is to have a conversation with the sponsoring brokerage firm. Find out what hedging - if any - is allowed
    Last edited: Mar 5, 2018
    #33     Mar 5, 2018
  4. ironchef


    A few years back I attended a free seminar given by Schwab on options, the instructor told us they would work with clients who had vested stock options to helped them with implementing a no cost collar to protect their gains.
    #34     Mar 6, 2018
  5. JackRab


    Come on... what time premium? It's the 4 year 12 call? The premium in that is nothing compared to the level of the stock... less than a dollar, and about one dollar of interest component. So on the total value of about 300 it's not something you should worry about. The stock moves up and down in 2 minutes more than 2 dollars. You've got 250 options with a value of about 75k correct? So 500 dollars isn't exactly something I would worry about.

    You're basically long NFLX at almost delta 100. So that's basically stock.

    What's your aim? You don't want to be long Netflix anymore?

    Any hedge in an account that's not looking at those employee options will be needing a decent amount of margin for you to put up, since you will likely want to short sell NFLX, or sell the synthetic by selling ATM call and buying ATM put. A decent rise in Netflix will erode your cushion and you will need to put down more margin to maintain the position... eventually it's possible that you will be liquidated... of course you can always at that point decid to exercise those options... but it's not a good situation to be in. Also locks up cash.

    Just buying puts... you will pay a lot in premium... a lot more than you would be willing. 1yr ATM put is >15% of the spot, $50. So that's steep.... Adds up if you do that every year.

    A collar, sell OTM call and buy OTM put... will leave you with some risk downwards. But also, again, you will need to put up margin... more and more when NFLX rises. Cash drain, only do that if you can hold your breath and sell those employee options when it's going up.

    With these situations... if it goes up and you have margin requirements, if it goes fast... you might not have time to put cash in the account and if you get liquidated at a top it's a shit deal.

    I seriously doubt any bank is going to lend you the money to do any derivatives trade, based on your employee options. You're not exactly a high net worth client, what's the total value? 250x300=75k? The compliance/paperwork/redtape involved isn't worth it for a bank. And the % you will likely pay means you're shooting yourself in the foot.

    What's the tax you're looking at? How much do you save if you wait and how long to wait for that?
    #35     Mar 6, 2018
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  6. ajacobson


    From the way they are described they are probably not fungible - so the only market would be OTC and he can't play in that market.
    #36     Mar 6, 2018
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  7. JackRab


    Yeah, I'd guess so. And nobody would be really interested in 75k worth of Netflix anyway.

    If you need the money... just sell it and pay the tax. Is it capital gain or income? What's the savings in tax rate really going to be, can't be that much...

    I find that people usually overstate the pros of waiting to pay tax vs the negatives of added risk in keeping just that one stock.
    #37     Mar 6, 2018
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  8. ironchef


    Thank you for bringing us back to reality.
    #38     Mar 6, 2018
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  9. JackRab


    Usually the best and cheapest way is KISS... Keep It Simple, Stupid!
    #39     Mar 6, 2018
  10. ajacobson


    Generally he can do cashless exercise at the sponsoring firm. They exercise and immediately sell. It is a taxable event as was the initial grant. Lots of tax, but currently the only way to beat the tax is to die. I'd rather pay the tax.
    #40     Mar 6, 2018
    JackRab likes this.