Start by addressing each of the terms of stock-option programs--exercise price, vesting, time to exercise, eligibility and grant size.
The lower the exercise price, the more the option is worth as the stock price rises.
The lack of a public market for the shares at the time of exercise may prevent a contemporaneous sale to produce cash to cover tax liabilities or to immediately recoup the exercise price paid by the option holder.
It can happen if, say, the stock price and the exercise price are so close that the option holder sees no value in paying the commissions to exercise.
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In reality, they looked very much like a straight swap for a prior option grant that was, at the time, miserably underwater (exercise price far in excess of stock price).
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This exercise price would continue to rise for the life of the option.
Moreover, the 18 South Korean banks and other investors that had bought almost 40% of Daewoo alongside Kumho Asiana are likely to exercise an option in December to sell the conglomerate their shares at a price of 31, 500 won over three times the level of June 26th.
The new investors may buy convertible preferred securities, that is, bond-like equity with an option to change to a set number of common shares at an established price and at an exercise date in the future.
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Price of that option: 20% of the monthly premiums charged at the time you exercise it.
The price an investor is willing to pay for an option depends on a number of factors including interest rates and the relationship between the market price and the exercise price.
In addition, he says, if a stock is trading for at least twice the exercise price, it may make sense to sell now to snag the lower rate, even if an option has several years to run.
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