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« Impact Of Special Dividends On Stock Compensation | Main | Effects Of The New Tax Law On Stock Compensation »

26 December 2012

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Bruce:

You quote someone as below:

"You can accelerate NQSO income into 2012 but keep the time value of the option. It is possible to do this by selling an option into the market that replicates the exercise price and expiration of the NQSO".

It is interesting that someone is suggesting using exchange traded call sales(i.e. writes) to manage his/her ESOs. I never thought I would see it.

However, there are experts that believe that selling the calls with exactly the same terms as the ESOs will not create a constructive sale. Robert Willens is one who claims that the profit from the ESOs is compensation and not gain thus Section 1259, the Constructive Sale rule would not apply.

Its better to sell at-the-money long term calls on only a part of the ESO position (perhaps 60-70%), especially if the seller has capital loss carry-over. Also selling calls by executives subject to SEC Rule 16, must be longer than a year otherwise gains could be subject to Rule 16 b(3)

Happy New Year

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