The Five Golden Rules are:

1. Don't exercise your options too early. The premature

exercising of ESOs causes substantial value to be

forfeited back to the employer.

Wait till the last possible date to exercise unless a

special event like a merger or take- over happens.

Perhaps an increase in dividends or a dramatic decrease

in volatility may justify an early exercise. Unless you have no

other assets or are in need of immediate funds, avoid the

premature exercise, sell stock and diversify strategy.

The benefits of diversifying are overstated. The premature

exercise and sale leaves less than 60% ( sometimes less

than 40%) of the Fair Value of the options to do

diversified investing.Some wish to disregard the penalty of

the early tax upon early exercise. In fact the early tax

penalty is substantial.

2. Try to reduce the risks of holding ESOs by selling (writing)

long term listed calls either against long stock or by selling

calls "naked" against your options. Buying puts prior to

exercise often increases more risks that it reduces, although

the judicious use of puts can sometimes be valuable. There

are some possibly good tax benefits to buying puts and you

never have to worry about a margin call when you buy and

fully pay for puts.

Check the trading activities of company officers and

directors for tips as to when to sell (write) your listed calls

or buy puts. Sell listed calls or buy puts when the officers

and directors are making premature exercises and stock sales.

There is proof that after officers and directors prematurely

exercise and sell the stock, there is a higher chance that the

stock will under-perform the market.

You can get the insider information from www.secform4.com.

Avoid selling calls or buying puts on days near the dates of

large options grants to top executive. There is statistical proof

that stocks do well after the grants to top executives. Make

sure that you are always substantially long deltas and do not

lose your alignment with the company by selling too many calls

or buying puts. Start small and build larger positions over time.

3. Try to find an adviser experienced in trading or managing

listed stock options. Go to lawyers and tax accountants for

legal and accounting advice not stock options advice. I never

met an attorney who understood options.

4. Understand all the terms of your Options Contract and

the company's Options Plan.

5. Study the articles on this site

www.optionsforemployees.com/articles.

There is more information about listed and employee

stock options in these articles than on any other site.

This is the only site on employee stock options written

by a professional options trader.

If you are not willing to use listed call selling, in my

view, you eliminate the most effective tool to manage

your options.

John Olagues

olagues@hotmail.com

504-305-4449

The author, JOHN OLAGUES, is a former member of the Chicago Board Options Exchange and the Pacific Stock Exchange for over ten years. He offers a unique view of employee stock options from a trader’s standpoint rather than from the standpoint of an accountant, compensation planner or academic. To contact JOHN OLAGUES email olagues@hotmail.com and  see www.optionsforemployees.com.