Replies to post #133672 on Biotech Values

[GrthzGd]

If it were up to me, exercising an option while in possession of material nonpublic information would nevertheless be a violation for the simple reason that it seems unfair.

I agree as to the bullish significance of option exercises. They mean that the exercising executive expects the issued stock to appreciate greatly, and he wants to hold it long enough to qualify for long term capital gains tax treatment on his hoped for gains.

But, unfair? The ability of an option holder to exercise whenever he pleases lies in the nature of the option itself, and the actual timing of exercise works no unfairness, as the options outstanding, exercised or no, should have already been factored into the stock valuation. If any unfairness occurs at all, it would have to be in their original issuance, not the timing of the exercise--and human nature being what it is, we need options in order to incent the executive.

[wallstarb]

There is no benefit to exercising an option if you have non material info unless you are goign to sell the shares after the event. If there is plenty of time until expiration of the options - its actually not a good move to exercise with no intention of realizing some gains as it destroys any "time value" left in the options and also triggers a taxable event.

The only reason to exercise is due to expiration of in the money options, or to exercise and sell. Many brokers will help insiders hedge ESO positions via short sale or doign some sort of forward buyback arrangement, but I beleive recently some transactions which were classified as a LOAN have been under scrutiny by the IRS because they unlock the $$$ in options without actually selling them.