>>different from exercise and keep-all scenario
Yes it is. The exercise and keep-all scenario involves the executive coming up with cash to fund the exercise price and taxes. So really that scenario is better modeled as a sell-to-cover followed by a new investment in the stock funded by other funds. (That's also the same reason why the keep-all scenario and sell a year later superficially looks so favorable compared with the wait and exercise later scenario - the former involves a "hidden" additional investment).
Most executives are totally clueless about options. They are also usually advised by brokers who have an incentive for the exec to cash out and re-invest the proceeds.
As a good example of the cluelessness, I have had more discussions than I care to think about with public company executives who have trouble grasping why a 1,000 share option grant when the stock price is $50 is more valuable than a 1,000 share grant when the stock price was $25. (All other things being equal, it is twice as valuable). They intuitively think that a grant with a lower strike price is somehow a "better" deal, missing the key fact that the two grants are both at the money. (So in their muddledom they are likely thinking about a $25 strike price grant with a $50 stock price, which would indeed be much more valuable).
Peter
Peter
