Replies to post #26420 on Advanced Micro Devices Inc (AMD)

[sgolds]

mas, greg, mary, Sander's options -

First, exercising two months ahead of expiration is very much last minute. It shows that he was holding them expecting a strong price from the buzz around flash and AMD64.

Most stock options are granted with a 4 or 5 year vesting, 10 year expiration from the date of grant. Let's assume these followed the general tradition. That means the shares were granted in 1994, vested fully by 1999, and Sanders sat on them another five years (vs. cashing in as soon as he could). He is exercising now when he is forced to exercise.

In 1994 AMD was giving only Non-quals, AFAIK. This means that there is a tax consequence on exercise - it is the fair market value (FMV, generally the closing price on exercise day) minus the strike price. The tax is due whether you sell or hold the shares, making it very dangerous to hold. (If you hold the shares and the price drops a bunch, you could wind up paying more tax than you can get for the shares later. The tax basis is moved up to the FMV on exercise day, so the lower price at sales is a capital loss.)

I am surprised that Sanders kept these shares until so close to expiration. He has a reputation for selling stock more quickly than that.