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December 12, 2006

Google Inc. Creates Private Market for Incentive Stock Options

posted by MR WAVETHEORY at 12/12/2006 08:04:00 PM
Google Inc. (Nasdaq GOOG) is allowing employees to sell their vested options via a private auction market created by Morgan Stanley. It makes alot of sense since the implied volatility of Google options tends to be very high, meaning the options are often worth more than the underlying stock. It's called the Transferrable Stock Option (TSO) program. Google explains:

As with most employee stock option programs, Google's program to date has allowed employees to do two things with their options. Upon vesting they can (1) hold them or (2) exercise them and then hold or sell the stock. With the new TSO program, employees will have an additional alternative: they can transfer (sell) their options to a financial institution through a competitive bidding process. The ability to sell options is not a novel concept -- today people can buy and sell options to purchase GOOG stock and the stock of many other companies on the public markets. What is novel is that we are extending this ability to trade options to employee stock options.


Because of the high premium and implied volatility of Google stock, Allan Brown explains that employees may be able to make more by selling the option rather than exercising it.

With the TSO program, employees will also be able to sell vested options to the highest-bidding financial institution, which may be willing to pay a premium above the difference between the exercise price and the market price for Google stock (even when the exercise price is higher than the market price). The premium paid is for the time value of the options. More on that and how institutions would do this, and why, is here.


More details, read the press release.

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