I have netflix employee stock options that I want to sell over the next 5 years. Not at the same time to avoid too much of short term tax (they are considered regular income as I generally exercise and sell on the same day). Now, there are several ways of doing this from my knowledge on options which I am gathering last year or two, though with minimal actual option-trading experience. But, still not sure what is the best course of action and hence I am posting this here. I don't own the stocks and hence covered calls are out of question if someone is thinking that. This is purely a optimal protection strategy. The possibilities are (assume 100,000 in the current market value minus cost for ease of calculations): 1. I buy put options covering 20% of the options till Jan 18 as insurance and exercise the call options (ESOP) and the put options if they are in the money. Now, these put options can also be of different kind. 1a. Pay 18 USD (as of 04/24/17) for 150 usd strike price (let us assume that 2 contracts will protect 20 % of the stock options) 2a. Pay 10 USD for 135 usd strike price. This is one thing I came up with in terms of insurance as an example. What are the other methods through which I can protect my ESOP (employee call options that have a longer time horizon), if I don't want to sell them all at once? Sorry about the long question, but hopefully I made it clear. If you are clear about his question and have a great knowledge and want to help, I appreciate a direct message as well. Thanks a bunch in advance. One thing I realized is that even if this protects the 20%, there is no quarantee that stock price will stay the same and hence I am exposing the remaining 80% for the next 4 years. May be I am overthinking this...I am sure you guys will set my brain straight.
Set up a no cost Collar: Sell an OTM call option against the stock options, use the $ to buy an OTM put option. You can set up the strikes, expiry to fit your need/tax situation.
interesting ... Question.. Other than your desire to sell them slowly for taxes , are there vesting periods where u absolutely can't sell them? If there is no lockup, you can sell calls above it. but your broker which I assume is separate from the broker holding your ESOP will ding you with stiff margin bec it is a naked short... Sell a call spread instead then buy a put like what ironchef said? What is your restriction on the calls?
Thanks for answering the questions. 20% of the options expire in 2021 and 80% in May 2022 and hence the 5 year horizon I mentioned. The ESOP is setup at eTrade and eTrade is my broker and it is fully vested and I have exercised the options and sold on the same day before with no restrictions. I am not sure if there is any restrictions, I can ask eTrade if it is a specific question.
If your options are administered by e-Trade, I am quite sure they will allow you to do a collar or a spread like the other poster said. The one other thing you need to do is to check and make sure your trades are not done in the stocks black out periods or you may violate the insider information clause that those of us given stock options have to abide to. Good luck.
I do find myself wondering if you'd still want to unload some of these shares...with effective subscriber growth back on the table after today's news, a sale is not something that would be on my horizon--unless of course its for purposes of rebalancing. (I'm looking back regretfully at yesterday's unfulfilled orders for the short side on the top of my debit spread)
if those calls are unrestricted and does not violate black out rules like ironchef said, I don't see why you can't short calls against it and buy puts.. With the collar on you (ie long put financed by short call) u would have a call vertical- the one u own thru ESOP vs short calls at a higher strike w/ the long put. Your risk graph would almost look like a straddle except capped on the upside...
Since you effectively bought the ATM call for $0 (courtesy of NFLX) this is what your risk graph would look like..
Thanks for replies. @ironchef: no blackout dates, since I left them. I still need to call for restrictions, though my guess is, none. Question: if I sell calls, won't I be assigned at any time it is OTM? What if that time is not a time I want to sell, due to tax reasons I mentioned. The answer just might be educational for me. @beerntrading: are you saying don't sell at all? I can sell enough to buy some, then I will be heavily netflixy...but can still keep some as regular stocks, if that's what you mean... @EdgeQuest: I did pay money to get them, but time value is what the bigger bargain is on being an employee.
Hi. You might have to settle with put verticals then to somewhat protect your portfolio. Consult your financial planner on this one due to the amalgam of factors in play.