Making Sense Of The Options Morass

If you've got employee stock options, you know they are both blessed and cursed little devils. They may make you rich one day. Meantime, they will definitely drive you crazy figuring out how and when it will be best to exploit them.

Happily, some relief is on the way. I've spent the past couple of weeks testing a trio of new Web sites (table) that, in differing ways, aim to help you value and manage your stock options. None is perfect, and only one is fully free. But if you're puzzled by which options will yield you the most cash after taxes or even just by valuing them to find your net worth, each site is worth a look.

The first to go live on the Web, last April, was, the brainchild of King Yao. He's a 29-year-old former options trader at Susquehanna Partners, a big institutional firm full of rocket scientists who trade such exotica as futures on stock-index options. The site has some free information and a tool or two to help sell Yao's main fee-per-report service. It's not cheap: $149, for example, buys a 21-page report contrasting the current value of employee stock options on two different stocks.

CASH CALCULATOR. Who would need that? Suppose you're being wooed by a rival. Yao's service could help you decide whether options offered by the other company are worth more or less than those you hold on your current employer's stock, even if they're out of the money. "It's kind of like comparing 401(k) plans," Yao told me. In some cases, $149 for the right answer would be a bargain. Yet I found a sample comparing employee options on Intel with some on Qualcomm hard to follow. Such details as a "Binomial Tree Example" left me feeling dumber than usual.

A better bet for most people is, which made its debut in June. It doesn't value options in high-quant style, but its free FAQs, a user forum, and tools give answers to some common questions. If you aim to raise, say, $50,000 for your kids' private-school tuition, this site has an "I Need Cash" calculator. It will tell you not just how many options to liquidate but, if you're vested in more than one grant of options, which one will yield the most cash after taxes. Although my Netscape browser found some bugs in it, the site's most intriguing feature is the "Comparison Modeling Tool." It will tell you whether you would be better off exercising options today and reinvesting in something else, given your estimate of how much the option stock and some alternative investment will return. I imagined I had 10,000 options on Intel that expire in 2004. I estimated Intel's shares would rise 15% a year and that my alternative investment would appreciate by 25% annually.

The tool told me that with Intel now at $141 a share and a strike price of 63, I would see a $780,000 gain. But after $324,870 in taxes, I would have just $455,130 to reinvest. If I put that money to work in the alternative investment, even at 25% a year it would grow only to $932,089 after taxes, $130,000 less than I would have by sticking with Intel and exercising those options near expiration--punishment for paying taxes early, a strategy that's rarely wise. Give up the power of compounding returns on a higher pretax balance, and you'll usually wind up poorer.

A rival site set to go live in August is I tried its "beta" version. In ambition and user-friendliness, it falls somewhere between the other two. Yet the site is promising: Soon, it plans to add an Alternative Minimum Tax calculator.

OptionWealth President Don Johnson told me his strategy is to sell the service to companies as an aid for employees. is in licensing talks with brokers, which might offer the tools to brokerage clients. My advice? Ask your employer or broker why it isn't giving you this sort of help to manage your employee stock options. You might stop cursing the little devils.

Questions? Comments? Send an e-mail to or fax (321) 728-1711