Sally Jameson Essay
If we ignore tax considerations and assume that Sally Jameson is free to sell her options at any time after she joins Telstar she has several chooses.
She can either choose to take the cash bonus, either take the options and sell it, or she can take the option and keep it until it is worth use.
Let’s compare the situations : 1- She takes the cash bonus and decide to invest it in a 5-year bond which rate is 6,02%.
So at the end she will win 5310$ (=5000*1,0602).
2- She takes the options in order to sell it.
Let’s assume that it is easy to find someone who want to buy the option at the value of the call option.
Seeing the exhibit 3, the standard …show more content…
To create more effective or more efficient incentives, in the case of Sally for example the stock options which are given should be more interesting for employees. Indeed here the strike price is 35$ which is way too high for the current value of the underlying asset and even if we look at the historical prices it is very unikely that the stock goes over 35$.
With a more likely strike price, it would create more intencives.
Then, we know that most of the time, stock options are only for executives with high salary. To create incentives for employees with low salary, companies should try to give stock options to each employees or maybe to compense it in helping employees with their tax payments.
If Sally accepts the option package and don’t want to put all her financial wealth tied to the fortune of Telstar she could sell call options on the market and get covered. She can sell call options with a strike point higher than the strike price of her own options. If she sells call options with a 45$ strike price, she could sell this option for a price of 1.75$ per option. She could sell 3000 options and gain (1.75*3000) 5285.00$. So, if the price of the stock at the expiration date is lower than 35$, she won’t exercise the option with Telstar