Forex chipaque: Opciones De Ey

Etiquetado con stock restringido

Antes del receso del Día de los Caídos, el Comité de Finanzas del Senado publicó su séptimo número en una serie de documentos que documentaban varias opciones en relación con posibles reformas en el código tributario. Este último documento cubre áreas de impuestos individuales sobre ingresos, administración de planes de beneficios y beneficios marginales para empleados. Si bien el documento no es un respaldo de ninguna idea en particular, arroja luz sobre las disposiciones bajo revisión y donde la futura política fiscal puede ser encabezada.

En particular, varios de los ítems incluidos en esta lista más reciente de opciones están conectados con el costo más alto de los beneficios marginales de los empleados: jubilación, salud y compensación para ejecutivos, y cómo se pueden reducir o redistribuir sus gastos tributarios relacionados.

Por ejemplo, la exclusión por premios de logro sería reducida o eliminada mientras se crearían nuevas exclusiones para préstamos estudiantiles proporcionados por el empleador y asistencia calificada de matrícula. Estas opciones se ponderan para reducir las exclusiones de compensación; Sin embargo, el informe hace hincapié en que no sugiere cómo se utilizaría cualquier aumento de los ingresos fiscales (por ejemplo, reducir el déficit o reducir las tasas impositivas).

A continuación se destacan algunas de las opciones que cambiarían la actual mecánica fiscal de los beneficios marginales de los empleados.

Tagged con opciones de acciones de incentivo

Los participantes de Ernst & amp; Young Webcast de LLP, Año fiscal de empleo en revisión. Presentó numerosas preguntas que demuestran el volumen y la complejidad de los numerosos desarrollos del impuesto sobre el empleo en 2017.

Aquí presentamos a los participantes de la webcast & # 8217; Las 10 preguntas más importantes y sus respuestas.

Si una empresa tiene múltiples subsidiarias, ¿se requiere un Formulario 8822-B para cada una de ellas?

Respuesta: El Formulario 8822-B se usa para actualizar la información de parte responsable proporcionada en la solicitud original (Formulario SS-4) para un Número de Identificación de Empleador (EIN) federal. En consecuencia, se le requiere reportar un cambio en la parte responsable de cada EIN afectado por ese cambio.

¿Hay información disponible sobre lo que el IRS significa por "parte responsable"?

Respuesta: Sí, el IRS ofrece alguna orientación aquí. Siempre hable con su asesor de impuestos si tiene preguntas sobre los responsables y su responsabilidad personal por los impuestos del fondo fiduciario.

Impuestos adicionales de Medicare

¿Es la paga de enfermedad de terceros sujeta al Impuesto Adicional de Medicare?

Respuesta: Sí, el Impuesto de Medicare Adicional se aplica a todos los salarios cubiertos por Medicare, incluyendo los pagos por enfermedad de terceros. Sin embargo, tenga en cuenta que el impuesto de Seguro Social y Medicare, incluido el Impuesto de Medicare Adicional, no se aplica después de los primeros seis meses de incapacidad. Para obtener más información sobre la tributación de los pagos por enfermedad de terceros, vea la Publicación 15-A del IRS.

Sólo para confirmar, ¿es correcto que para retener los errores capturados después del cierre del año, ajustemos solo los salarios del Impuesto de Medicare Adicional y no el impuesto en el Formulario 941-X?

Respuesta: Sí, eso es correcto. El IRS confirmó recientemente que los errores del año anterior, a menos que sean administrativos, se informan en el Formulario 941-X sólo en la columna para los salarios del Impuesto de Medicare Adicional. No corrige el impuesto adicional de Medicare retenido.

Recapitulación de pagos por enfermedad de terceros

Nuestros empleados reciben pagos por incapacidad a través del fondo de seguro de discapacidad de Nueva Jersey. ¿Estamos obligados a presentar una recapitulación de pago por enfermedad de terceros en este caso?

Respuesta: No. Los empleadores de Nueva Jersey no están obligados a presentar un Formulario 8922 de conformidad con los pagos por enfermedad de terceros hechos del fondo de seguro por incapacidad de Nueva Jersey. De hecho, en general, se requiere un recuento de pagos por enfermedad de un tercero del proveedor de seguros sólo si el empleador del cliente está presentando los formularios W-2 para reportar el pago por enfermedad de terceros. Consulte la Publicación 15-A para obtener más información sobre el recuento de pagos por enfermedad de terceros.

Si proporcionó beneficios de incapacidad a empleados de Nueva Jersey a través de un plan privado, tenga en cuenta que puede que tenga que darles el Formulario NJ-2440.

¿Es seguro concluir que la indemnización por despido que se paga en cuotas está exenta del impuesto FICA?

Respuesta: No necesariamente. Claramente, la indemnización por despido que se paga en una suma global está sujeta a FICA; Sin embargo, para ser excluidos del impuesto de FICA los pagos deben ser hechos de un plan calificado del subsidio de desempleo suplementario (SUB). Hacer los pagos en cuotas es sólo uno de los requisitos de un plan SUB calificado. Para más información sobre los requisitos de un plan SUB, lea nuestro informe especial.

Beneficios para parejas del mismo sexo

¿Qué significa "estado de celebración"?

Respuesta: El estado de celebración es donde el empleado estaba casado. Por ejemplo, digamos que un residente de Luisiana quiere casarse con su pareja del mismo sexo. Louisiana no permite que los mismos parejas de género se casen. Con el fin de casarse, el residente de Louisiana tendría que ir a un estado que permitirá el matrimonio (por ejemplo, Minnesota). En este ejemplo, Minnesota es el estado de celebración. Si este empleado se casara en Minnesota, los beneficios del seguro de salud proporcionados a su cónyuge del mismo sexo están sujetos a los ingresos estatales de Louisiana y al impuesto al seguro de desempleo, pero están exentos del impuesto sobre la renta federal y el impuesto al empleo (Seguro Social, ).

8. ¿Son siempre tributables los beneficios de las parejas domésticas?

Respuesta: En general, sí. El IRS explica que al cumplir con la definición de "cónyuge" para propósitos de impuestos federales, la pareja debe estar legalmente casada bajo la ley estatal. El IRS no considera que las parejas domésticas u otras licencias que los estados puedan proveer, como la unión civil o la pareja doméstica registrada, cumplan con la definición del cónyuge. Las reglas estatales pueden diferir de las federales y deben ser discutidas con su asesor de impuestos de empleo. Lea estas preguntas frecuentes del IRS sobre las reglas fiscales federales que rigen las parejas del mismo sexo.

Retención del impuesto sobre la renta de no residentes

Si un ejecutivo viaja a varios estados y trabaja por una semana a la vez en esos estados, ¿está sujeto al impuesto sobre la renta en esos estados?

Respuesta: Depende del estado donde el ejecutivo esté trabajando. Las normas estatales relativas a los requisitos del impuesto sobre la renta de los no residentes varían. Por ejemplo, algunos estados no requerirán impuestos de no residentes si el empleado trabaja en el estado por un tiempo corto (por ejemplo, 14 días). Por esta razón, es una práctica líder para rastrear los lugares de trabajo de los empleados y para cumplir con las normas de impuestos y reporte de no residentes que se aplican. Debe consultar con su asesor de impuestos sobre el empleo los requisitos del estado que se aplican a su fuerza de trabajo móvil.

Uno de nuestros empleados de Nueva York trabaja desde su casa en Alabama. ¿Su salario está sujeto al impuesto sobre la renta de Nueva York?

Respuesta: Depende de la razón por la cual el empleado de Nueva York está trabajando desde Alabama. Bajo las reglas del impuesto sobre la renta de Nueva York, si un empleado trabaja fuera de Nueva York para su propia conveniencia, en lugar de la conveniencia del empleador, los salarios que gana trabajando en Alabama están sujetos a los ingresos del estado de Nueva York (y, Impuestos y retenciones. Lea más información sobre la conveniencia de Nueva York de la regla del empleador.

En particular, varios de los ítems incluidos en esta lista más reciente de opciones están conectados a los beneficios más importantes de los empleados: jubilación, salud y compensación para ejecutivos, y cómo se pueden reducir o redistribuir sus gastos tributarios relacionados.

A continuación se destacan algunas de las opciones que cambiarían la actual mecánica fiscal de los beneficios marginales de los empleados.

Acciones de Direxion Daily Energy Bear 3X (ERY)

Noticias en tiempo real después de las horas previas al mercado

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Calculadora de opciones de acciones

Recibir opciones para las acciones de su empresa puede ser un beneficio increíble. Incluso después de unos años de crecimiento moderado, las opciones sobre acciones pueden producir un buen retorno. Utilice esta calculadora para determinar el valor de sus opciones de acciones para el próximo a veinticinco años.

Se requiere Javascript para esta calculadora. Si utiliza Internet Explorer, puede que tenga que seleccionar "Permitir contenido bloqueado" para ver esta calculadora.

Para obtener más información acerca de estas estas calculadoras financieras, visite: Dinkytown Financial Calculators de KJE Computer Solutions, LLC

El resultado de esta herramienta se genera sobre la base de las aportaciones proporcionadas por usted y destinadas a transmitir información financiera general diseñada para ayudarle a alcanzar sus metas financieras. No tiene en cuenta todas las circunstancias únicas que pueden afectar sus decisiones financieras, y nada de lo contenido aquí debe considerarse asesoramiento de inversión personalizado que se adapte a sus necesidades individuales. La información no debe interpretarse como asesoramiento legal, fiscal o contable. Los resultados obtenidos no deben servir como base única o primaria para tomar decisiones de inversión.

Chile: la administración tributaria aclara el tratamiento fiscal de las opciones sobre acciones

La resolución 1.720 del 26 de septiembre de 2017, emitida por el Servicio de Impuestos Internos (SII), aclara el tratamiento fiscal de las opciones sobre acciones, concretamente en el caso de la concesión de una opción de compra de acciones no transferible a un ejecutivo de un residente Subsidiaria por la sociedad matriz no residente, y el ejercicio posterior de esa opción.

El SII ha decidido que la concesión y ejercicio de una opción de compra de acciones no tiene consecuencias fiscales, ya que no hay aumento de capital para el ejecutivo hasta la fecha en que la acción se aliena.

&dupdo; Copyright IBFD. Este artículo es parte de una selección de noticias diarias del Servicio de Noticias de Impuestos (TNS) de IBFD elegido por profesionales de EY. Todos los derechos sobre el contenido residen en IBFD. Cualquier uso requiere el permiso previo de IBFD por escrito. La renuncia de IBFD se aplica a cualquiera y todos los artículos y publicaciones de IBFD.

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Método del stock de tesorería

¿Qué es el "método de inventario de tesorería"

El método de autocartera es el componente del denominador de utilidades por acción diluido que incluye la red de nuevas acciones potencialmente creadas por los warrants y opciones no-ejercidos en el mercado. Este método supone que los ingresos que una empresa recibe de un ejercicio de opción en el dinero se utilizan para recomprar acciones comunes en el mercado.

Con el fin de cumplir con los principios de contabilidad generalmente aceptados (GAAP), el método de autocartera debe ser utilizado por una empresa al calcular sus utilidades diluidas por acción (EPS).

BREAKING DOWN 'Método de inventario de tesorería'

La neto de nuevas acciones potencialmente creadas se calcula tomando el número de acciones que compran las opciones en el dinero, restando el número de acciones ordinarias que la compañía puede comprar del mercado con la opción. Esto se suma al número total de acciones en el denominador y disminuye el número EPS.

Por ejemplo, supongamos que una compañía tiene actualmente opciones en el dinero que cubren 10.000 acciones con un precio de ejercicio de $ 50. Si el precio actual de mercado es de $ 100, las opciones están en el dinero y, según el método de tesorería, deben agregarse al denominador de utilidad diluido. Los ingresos que la empresa recibirá serán $ 500,000 ($ 50 x 10.000), lo que les permite recomprar 5.000 acciones en el mercado ($ 500,000 / $ 100). Por lo tanto, la red de nuevas acciones es de 5.000 (10.000 acciones de opción - 5.000 acciones recompradas).

Un derivado que confiere el derecho, pero no la obligación.

La porción de la ganancia de una compañía asignada a cada una.

Un derivado financiero que representa un contrato vendido por uno.

Ganancias diluidas por acción (o EPS diluido) es un rendimiento.

El conjunto común de principios, normas y procedimientos contables.

El precio al que se puede comprar el valor subyacente (llamada.

Una mirada a las cinco variedades de EPS y lo que cada uno representa puede ayudar a un inversionista a determinar si una empresa es un buen valor, o no.

Las empresas pueden manipular sus números, por lo que necesita aprender a determinar la exactitud de EPS.

EPS ayuda a los inversores a analizar las ganancias en relación con los cambios en el nuevo capital social.

Aprenda una manera sencilla de traer los beneficios de los derivados a su cartera.

Fondos Mutuos y ETFs

Descubra cómo las tendencias de la cartera en el Fondo de Apreciación de Capital T. Rowe Price ayudaron a mantener el rendimiento positivo en 2017 y aprender cómo puede ayudar a su cartera.

El diferencial ajustado a la opción, o la OEA, mide el spread de una tasa de seguridad de renta fija y la tasa de rendimiento libre de riesgo ajustada para tener en cuenta una opción integrada.

Repasamos estos métodos de cálculo de este componente del balance, y cómo la elección afecta a la línea de fondo.

El efectivo restringido es efectivo que no está disponible para que una compañía lo utilice inmediatamente. Está destinado a un propósito específico.

Hemos arrojado luz sobre por qué los consumidores deciden usar esta forma de deuda y si es una buena alternativa.

¿Cuáles son las opciones binarias, cómo funcionan y dónde se pueden comercializar legalmente en los EE. UU.

Aprenda sobre los factores que influyen en cómo los inversionistas y los prestamistas evalúan el cociente de deuda para una compañía y porqué la respuesta. Leer respuesta >>

Un derivado es un contrato entre dos o más partes cuyo valor se basa en un activo financiero subyacente acordado. Leer respuesta >>

El comercio después de las horas de trabajo (AHT, por sus siglas en inglés) se refiere a la compra y venta de valores en las principales bolsas fuera de los regulares especificados. Leer respuesta >>

Aprenda la diferencia entre gastos y depreciación de activos corrientes y de largo plazo, y cómo puede ser el capital de trabajo. Leer respuesta >>

Averigüe cómo y por qué el capital de trabajo de una empresa puede cambiar con el tiempo, aunque el fondo en realidad no expira, y cómo. Leer respuesta >>

Aprenda sobre los tres factores principales que determinan cuánto capital de trabajo es necesario para una pequeña empresa, incluyendo negocios. Leer respuesta >>

La ventaja competitiva que una empresa tiene sobre otras empresas de la misma industria. Este término fue acuñado por renombrado.

Un crédito fiscal en los Estados Unidos que beneficia a ciertos contribuyentes que tienen bajos ingresos de trabajo en un año fiscal determinado.

Un cálculo de impuestos que agrega ciertos elementos de preferencia de impuestos de nuevo al ingreso bruto ajustado. Utilización de los impuestos mínimos alternativos (AMT).

La fecha de vencimiento de varios futuros de índices bursátiles, opciones de índices bursátiles, opciones sobre acciones y futuros sobre acciones individuales. Todas las acciones.

La tasa de rendimiento de una propiedad de inversión de bienes raíces sobre la base de los ingresos que la propiedad se espera que genere.

Pena de Retiro Anticipado La cantidad en dólares de interés o principal perdida debido al retiro anticipado de una inversión a plazo fijo. Esto no debe confundirse con el impuesto al consumo del 10% aplicable a ciertas distribuciones de jubilación antes de cumplir los 59 años y medio.

Ganancias por acción (TTM) Esta es la ganancia total de 12 meses (TTM) dividida por el promedio de acciones diluidas en circulación durante los últimos 12 meses.

Fecha efectiva La fecha en que se ejecutó un pedido de canje de anualidad.

Rendimiento Efectivo En el contexto de un comercio de bonos secundarios, el rendimiento efectivo incluye el precio cotizado más el coste total (o el margen) de la transacción.

Ejemplo: Un bono puede cotizarse con un precio de venta de 101,00 y un rendimiento de solicitud correspondiente de 5,60%. Si la concesión por bono era de $ 2 por bono, la concesión total de 10 bonos sería de 10 X $ 2 = $ 20. Expresado a un nivel por bono, el precio subirá a 101,20 por bono, y el rendimiento correspondiente a ese precio sería conocido como el Rendimiento Efectivo. El Rendimiento Efectivo será menor que el rendimiento originalmente cotizado, antes de la concesión, aunque lo más bajo depende de factores tales como el cupón y el tiempo restante hasta el vencimiento del bono en cuestión.

83 (b) Elección Un código de impuestos del IRS que estipula que un recipiente de una concesión restringida de la acción puede elegir, dentro de 30 días de la concesión de la concesión, incluir en su renta bruta el valor justo de mercado de las acciones en la fecha de la concesión conceder. La elección de no hacer esta elección somete las acciones a ser reportado como ingreso cuando se conceden.

Redes de Comunicaciones Electrónicas (ECN) Ordenes de Horario Extendido Un ECN es esencialmente un sistema de emparejamiento electrónico de pedidos en el que participan inversionistas y otros participantes en el mercado.

La ECN en la que participa Fidelity puede estar vinculada a otras ECNs, lo que aumentará la posibilidad de que se empareje un pedido. Puede realizar pedidos a través de la ECN mediante las sesiones de negociación de Horario extendido. El Premarket y la sesión de After Hours.

Las órdenes de ECN para la sesión de premercadería se pueden colocar de 7:30 a 9:15 a. m. Hora del Este. Los pedidos ECN sólo se pueden ejecutar después de las 8:00 AM hora del Este. Las órdenes introducidas entre las 7:30 y las 8:00 am Hora del Este se ponen en cola en Fidelity en función del tiempo recibido. A las 8:00 am Fidelity transmite las órdenes a la ECN y las órdenes transmitidas se ponen en cola en REDIBook según el tiempo recibido y el precio límite especificado.

Después de las 8:00 AM hora del Este, Fidelity continúa enviando órdenes comerciales Premarket a la ECN en el orden en que Fidelity las recibe hasta las 9:15 AM Hora del Este, a menos que el comercio se detiene antes de las 9:15 a. m.

Las órdenes en la sesión de After Hours se pueden colocar de 4 a 8 p. m. Hora del Este. Los pedidos ECN sólo se pueden ejecutar después de las 4:30 p. m. Hora del Este. Las órdenes entre 4:00 y 4:05 p. m. Hora del Este se ponen en cola en Fidelity según el tiempo recibido. Entre las 4:05 y las 4:30 p. m. Fidelity transmite las órdenes a la ECN y las órdenes transmitidas se ponen en cola en REDIBook según el tiempo recibido y el precio especificado.

Después de las 4:30 p. m. Hora del Este, Fidelity continúa enviando las órdenes comerciales de After Hours a la ECN en el orden en que Fidelity las recibe hasta las 8 p. m. Hora del Este, a menos que el comercio se detenga antes de las 8 p. m.

Debe tener una correduría de Fidelity & # 174; Para realizar un pedido durante la sesión de pre-venta o después de horas.

Las órdenes límite de compra y venta de acciones se comparan electrónicamente, si existe la posibilidad de una transacción emparejada. La ECN operará durante las horas de negociación regulares y durante las sesiones de pre-mercado y después de horas. Sin embargo, sólo puede ingresar órdenes a través de Fidelity para su ejecución a través de ECN durante las sesiones de negociación de Horario Extendido.

En las sesiones de Operaciones de Horario Extendido, puede negociar todos los valores NASDAQ (Mercado Nacional y SmallCap) y listados.

Si una acción que normalmente cotiza en la ECN se cierra en un mercado en su mercado primario, o la negociación es detenida más tarde por su bolsa primaria o por una autoridad reguladora, la negociación de esa acción también se suspenderá en la ECN.

El horario extendido estará disponible a través de la ECN a través del sitio web de Fidelity. No estará disponible a través del servicio telefónico automatizado de Fidelity, otros servicios en línea ni a través de los representantes de Fidelity. Premarket y After Hours cotizaciones obtenidas de Fidelity. com sólo reflejarán los precios disponibles en REDIBook. Las comisiones serán las comisiones habituales basadas en la web.

Una vez que coloque una orden limitada en la ECN, la orden se emparejará en un primer llegado, primer servido base, al precio que usted especifique.

Transferencia Electrónica de Fondos Compra Esta es una transferencia de efectivo de una cuenta bancaria:

Para comprar acciones de fondos mutuos en una cuenta de fondos mutuos

Para transferir efectivo a la cuenta central de corretaje

Para hacer un depósito a una cuenta del Plan de Ahorros de la Universidad y comprar unidades de una cartera (por ejemplo, Cartera Única 2017, Cartera DE 2018) en la cuenta

Para los IRAs de Fidelity, puede usar el servicio de transferencia electrónica de fondos para transferir dinero de una cuenta bancaria para hacer una contribución IRA anual al IRA.

Para el Fidelity Brokerage & reg; IRAs, todas las transferencias van a la cuenta principal.

Este servicio no está disponible para Fidelity NetBenefits & reg; Y las cuentas de BrokerageLink.

Para obtener los límites de contribución específicos de la cuenta de información, utilice el Evaluador IRA al que puede acceder seleccionando Productos de inversión & gt; & gt; Opción de jubilación.

Para obtener información acerca de la instalación o el uso de la Transferencia Electrónica de Fondos, llame a un representante de Fidelity al 800-544-6666.

Reembolso por Transferencia Electrónica de Fondos Para una cuenta de fondo mutuo, se trata de una transferencia de los ingresos de la venta de acciones de fondos mutuos a su cuenta bancaria. Para una cuenta de corretaje, esto es transferir dinero de la cuenta principal a su cuenta bancaria. Para las cuentas de PAS, esto es la transferencia de los ingresos de la venta de activos dentro de su cartera a su cuenta bancaria.

Nota: Este servicio no está disponible para Fidelity NetBenefits & reg ;. BrokerageLink. Y las cuentas del Plan de Ahorros para la Universidad.

Para solicitar una distribución en línea desde un IRA de Fidelity, seleccione Cuentas y Comercio & gt; & gt; Cartera y elija Transferir dinero / acciones del selector de acciones junto a la cuenta IRA deseada.

Solicite distribuciones de las cuentas de Keogh con un solo formulario de solicitud de retiro que se encuentra en la pestaña Servicio al cliente de Fidelity. com o llame a un representante de Fidelity al 800-544-6666.

Para obtener información acerca de la instalación o el uso de la Transferencia electrónica de fondos, llame a un representante de Fidelity al 800-544-6666.

Servicio de Transferencia Electrónica de Fondos Servicio para cuentas de corretaje y fondos mutuos, incluyendo cuentas de jubilación y no retiro elegibles y también para cuentas del Plan de Ahorros para la Universidad. Este servicio no está disponible para Fidelity NetBenefits & reg; Y las cuentas de BrokerageLink.

El servicio de Transferencia Electrónica de Fondos para cuentas de no retiro:

Para las cuentas de corretaje, le permite transferir dinero entre su cuenta de corretaje Fidelity y su cuenta bancaria

Para cuentas de fondos de inversión y PAS elegibles, le permite transferir dinero de su cuenta bancaria que se utiliza para financiar su cuenta de Fidelity o transferir los ingresos de una venta a una cuenta bancaria

El servicio de transferencia electrónica de fondos para las cuentas del Plan de ahorro para la universidad le permite transferir dinero de su cuenta bancaria que es un depósito a su cuenta del Plan de ahorro para la universidad. El dinero transferido se utiliza para comprar unidades adicionales en una cartera (por ejemplo, Unique Portfolio 2017, DE Portfolio 2018) en la cuenta.

Tenga en cuenta que para las cuentas del Plan de ahorro para la universidad sólo puede transferir de su cuenta bancaria ya su cuenta del Plan de ahorro para la universidad.

El servicio de Transferencia Electrónica de Fondos para IRAs Tradicionales y Roth IRAs:

Para IRA de corretaje, le permite transferir dinero de su cuenta bancaria para hacer una contribución IRA anual a su cuenta principal dentro de su corredor IRA

Para IRAs de fondos mutuos elegibles, le permite transferir dinero de su cuenta bancaria para hacer una contribución y comprar acciones de fondos mutuos en su fondo de inversión Fidelity IRA

Nota: Para solicitar una distribución en línea de un IRA de Fidelity, seleccione Cuentas y Comercio & gt; & gt; Cartera y elija Transferir dinero / acciones del selector de acciones junto a la cuenta IRA deseada.

Solicite una distribución de una cuenta de Keogh con un solo formulario de solicitud de retiro que se encuentra en la pestaña Servicio al cliente de Fidelity. com o llame a un representante de Fidelity al 800-544-6666.

A partir del 1 de enero de 2002, los límites anuales de contribución al IRA han aumentado para el año fiscal 2002 y más allá. Para obtener información específica, puede utilizar el Evaluador IRA al que puede accederse seleccionando Productos de inversión & gt; & gt; Opción de jubilación.

Para obtener información acerca de la instalación o el uso de la Transferencia Electrónica de Fondos, llame a un representante de Fidelity al 800-544-6666.

Elegible para Ajuste de Crédito Fidelity proporciona un ajuste de crédito anual en pagos sustitutivos recibidos cuando se ha prestado un valor de una cuenta de margen con un saldo deudor de margen sobre la fecha de registro. El ajuste de crédito se aplica a una tasa de 30,77%, lo que supone que un pago sustitutivo se grava al tipo impositivo federal más alto del 35% y que un dividendo calificado sería imponible a la tasa federal más alta del 15%. Dado que el ajuste de crédito en sí mismo es gravable, contiene un ajuste interno sobre sí mismo. Tenga en cuenta que todos los pagos sustitutivos recibidos no son elegibles para ajustes de crédito y ciertos pagos sustitutivos que actualmente califican para un ajuste de crédito podrían ser descalificados después de que el proceso de reclasificación de dividendos anual tenga lugar en enero de 2005.

Posiciones Elegibles Una opción disponible en la pantalla Transferir Acciones. Seleccione esta opción para mostrar todas las posiciones y sus acciones elegibles y el valor disponible para la transferencia desde la cuenta de origen seleccionada.

Acciones Elegibles Las acciones elegibles para la transferencia a otra cuenta.

No todas las acciones de una posición pueden ser elegibles para la transferencia. Las acciones que aún no han sido liquidadas, son restringidas o no se pueden transferir.

Dirección de correo electrónico / Pager Pin Al ingresar una indicación de interés en una nueva emisión, una oferta de renta fija (por ejemplo, un bono), este es el método por el cual se le notificará con actualizaciones sobre la oferta, como precios, fecha y Período de tiempo para confirmar (si corresponde), y cuando se asignan valores.

Este método se suministra con la información que ingresa cuando se registra en Fidelity Alerts.

Emerging Market Un mercado de valores que es de menor tamaño o que tiene un historial de operación corto, por ejemplo, Grecia, Rusia, China y Brasil.

EMMA La fuente oficial para divulgaciones municipales y datos de mercado tales como declaraciones oficiales, documentos continuos de divulgación e información de precios de comercio en tiempo real.

Plan de compra de acciones para empleados Un plan ofrecido por un empleador según el cual los empleados tienen la oportunidad de comprar las acciones de la empresa, generalmente a un precio descontado, a través de deducciones de nómina después de impuestos.

El Plan de Compra de Acciones para Empleados también puede referirse al documento contractual entre un empleador y empleado que establece los derechos y obligaciones del Plan.

Encriptación Procedimiento utilizado para convertir la información en un formato que busca impedir que cualquier persona, excepto el destinatario, lea la información (por ejemplo, el envío de un mensaje en el código).

Valores finales En la pantalla Análisis histórico, los montos en dólares de los valores finales se calcularon utilizando el patrimonio neto actual de la cuenta que usted seleccionó y luego analizaron cómo esa cantidad habría sido realizada en una cartera de muestra "diversificada" compuesta por la misma Mezcla de activos (acciones, bonos y corto plazo) como sus tenencias reales.

Nota: El rendimiento del pasado no es garantía de rentabilidades futuras.

Calificación mejorada (Moody's) Las calificaciones mejoradas pertenecen únicamente a valores municipales estadounidenses. Una calificación mejorada es la evaluación publicada por Moody's de la calidad crediticia de una obligación en particular, ausente de cualquier seguro o envoltorio de un garante financiero, pero reflejando la calidad de crédito independiente de la emisión subyacente así como cualquier respaldo crediticio proporcionado por un programa estatal de mejora de crédito.

EPS el beneficio por acción (EPS) de un título, el beneficio neto disponible para la acción común dividido por el número de acciones en circulación.

Tasa de Crecimiento EPS (%) En un Perfil de la Empresa. Esta tasa de crecimiento es la tasa de crecimiento anual compuesto de las ganancias por acción (EPS) excluyendo partidas extraordinarias y operaciones interrumpidas durante los últimos 1, 3 o 5 años.

(%) Esta es la utilidad trimestral más reciente por acción (EPS) menos la utilidad trimestral precedente, dividida por la utilidad neta del trimestre anterior, multiplicada por 100.

Porcentaje de cambio de EPS, TTM vs. TTM Hace un año (%) Este es el porcentaje de cambio en las ganancias por acción (EPS) de 12 meses (TTM) comparadas con el mismo período de 12 meses de un año atrás.

Equidad Se refiere a los activos mantenidos en una cuenta. Equidad incluye cualquier valor de mercado largo y saldo de crédito, menos cualquier pasivo, e incluye cualquier valor de mercado corto y saldos de débito.

Equity Buying Power Consulte el nuevo nombre para este campo, Margin Buying Power. para más información.

Equity Foreign vs. Domestic Esta es una sección en la pantalla Graphical View. Esta sección muestra el porcentaje de sus tenencias que se clasifican como acciones que se invierten en Estados Unidos y no en Estados Unidos (extranjeras).

Los porcentajes incluyen las tenencias en su cartera o la una o más cuentas que seleccione. Esto incluye valores subyacentes en sus fondos mutuos.

Detalle de Equidad Extranjera vs. Detalle Nacional Esta es una sección en la pantalla Detalle de Inversiones. Esta sección muestra los valores en dólares de cada una de sus participaciones en Estados Unidos y Estados Unidos que se clasifican como acciones. Todas las cantidades en dólares se corresponden con la fecha y la hora que se muestran en el Panel de control.

Los montos en dólares incluyen las tenencias de su cartera o las cuentas de uno o más que usted selecciona. Esto incluye valores subyacentes en sus fondos mutuos.

Fideicomiso (Esc.) Hasta el vencimiento Se refiere a los bonos municipales para los cuales el pago a los tenedores de bonos se asegura en un fondo de custodia, consistente típicamente en obligaciones directas del gobierno de los Estados Unidos, en un monto suficiente para pagar el capital e intereses de una emisión al vencimiento.

En la pantalla de detalles de seguridad de renta fija (por ejemplo, bonos), Sí muestra si el pago a los tenedores de bonos está asegurado en depósito de garantía. De lo contrario, no se mostrará.

Fecha de vigencia del fideicomiso La fecha de vigencia final de un fondo establecido para mantener los fondos prometidos y para ser utilizados exclusivamente para un propósito designado, generalmente para pagar el servicio de la deuda en una emisión pendiente en un reembolso anticipado.

Escrowed to Maturity Bonds que están respaldados por fondos de custodia diseñados para realizar pagos como se describe en la escritura original del valor. Los fondos en la cuenta de depósito en garantía se utilizan para pagar los pagos periódicos de cupones y el principal del depósito en garantía hasta su vencimiento (ETM). Normalmente, los fondos depositados en reserva para el ETM se invierten en valores de deuda de corto plazo y bajo riesgo.

Fecha de Compra de ESPP El valor justo de mercado de una acción de la acción en la fecha en que la compra fue realizada a través de un Plan de Compra de Acciones para Empleados.

Precio de compra de ESPP El precio pagado por acción por compra de acciones a través de un Plan de Compra de Acciones para Empleados, según se define en las reglas del plan. Este precio descontado está determinado por las reglas del plan.

Ingreso anual estimado (EAI) Estimación del ingreso anual de una posición de seguridad específica durante los próximos doce meses. EAI para los bonos del gobierno de los Estados Unidos, corporativos y municipales, y Certificados de Depósito (CD) se calcula multiplicando la tasa de cupón por el valor nominal del valor. La EAI para las acciones comunes (incluyendo ADRs y REITs) y fondos mutuos se calcula usando un Dividendo Anual Indicado (DIA). Ver ejemplos de cálculo a continuación:

Para bonos de tasa fija y CD: EAI = Valor nominal x Tasa de cupón Ejemplo: Posee un bono con valor nominal de $ 1.000 y un cupón de 5% EAI = $ 1.000 x .05 = $ 50.00

Para Acciones Comunes, ADR's, REIT's y Fondos Mutuos: EAI = # de Acciones x IAD Ejemplo: Usted posee 100 acciones de ABC Stock, IAD de ABC Stock es .80 EAI = 100 x .80 = $ 80.00

EAI se calcula para los siguientes valores cuando están disponibles: bonos de tasa fija (incluyendo tesorería, agencia, GSE, corporativos y bonos municipales), CD, acciones ordinarias, ADRs, REITs y fondos mutuos.

EAI no se calcula para acciones preferentes, productos negociados en bolsa (ETFs y ETNs), UITs, acciones internacionales, fondos cerrados y los siguientes tipos de bonos: step-up, tasa variable, tasa variable, descuento, cupón cero, factor , Hipotecarios, bonos con un factor de inflación y ciertos bonos internacionales (incluidos los que tienen el indicador "extranjero" en la página de Detalles de Bonos).

Pago Estimado de Intereses Anuales La cantidad de interés que el valor pagará en un año calendario. Dependiendo de la seguridad y del emisor, los pagos podrían hacerse mensualmente, trimestralmente, semestralmente o anualmente.

Cantidad anual estimada del capital El pago anual estimado del principal que está programado recibir del emisor del bono. Esto suele ocurrir en la fecha de vencimiento. Sin embargo, si el bono es exigible puede recibir su principal antes de la fecha de vencimiento.

Ingresos en efectivo estimados Estimación de los ingresos de una orden de ejercicio y venta. Esta estimación muestra todos los ingresos después de que se deduzcan las estimaciones de costos o impuestos.

Para una orden de ejercicio y venta para opciones de acciones de incentivo. Una estimación de los ingresos después de las estimaciones para el costo de ejercicio (por ejemplo, comisiones y honorarios) se deduce

Para una orden de ejercicio y venta para opciones de acciones no calificadas. Una estimación de los ingresos después de las estimaciones para el costo de ejercicio. total taxes (e. g. federal and state income taxes), and the cost to exercise (e. g. commissions and fees) are deducted

Estimated Commission The estimated amount you will pay on the order you just placed. The actual commission is assessed when the order is executed. How fees and commissions are assessed depends on a variety of factors. For more information, see the Brokerage Commission & Fee Schedules at Investment Products > Comercio. The actual commission is assessed when the order is executed. How fees and commissions are assessed depends upon a variety of factors. For more information, please see the Brokerage Commission & Fee Schedules page under Investment Products > Trading.

Estimated Concession An estimation of the additional markup or markdown that will be added to the cost of a fixed income securities trade. A concession is the per-bond markup or markdown on a fixed income trade, as opposed to an agent commission.

Estimated Cost The estimated cost of the bonds, including accrued interest, for the bonds that make up a particular rung in a ladder.

Estimated Exercise Cost This is an estimate of the cost of exercising your stock options. El costo de ejercicio se calcula multiplicando el precio de la subvención por el número de opciones sobre acciones que está ejercitando. Exercise cost does not include tax withholding or any fees or commissions that may apply.

Estimated Fair Market Value Per Share The fair market value divided by the number of RSA shares or units you own. Fair market value is the value of the shares when they vest and you receive the proceeds, as specified in your RSA agreement and as used to determine the amount of income treated as compensation for Federal income tax purposes. Fair market value is based on prior business day's close, average high and low for the day, real-time price, or today's close.

Estimated Fair Market Value Per Unit The fair market value divided by the number of RSUs you own. Fair market value is the value of the units when they vest and you receive the proceeds, as specified in your RSU agreement and as used to determine the amount of income treated as compensation for Federal income tax purposes. Fair market value is based in prior business day's close, average high and low for the day, real-time price, or today's close.

Estimated Gain An estimate of the gain you may receive and taxes you may owe on an accepted Restricted Stock Award (RSA) on its vesting date.

Estimated Gross Sale Proceeds This is an estimate of the proceeds from an exercise and sell order. Esta estimación muestra todos los ingresos antes de deducir las estimaciones de costos o impuestos.

For an exercise and sell order for incentive stock options. this is an estimate of the proceeds before the estimate for the cost to exercise (e. g. commissions and fees) is deducted

For an exercise and sell order for non-qualified stock options. this is an estimate of the proceeds before the estimates for the exercise cost. total taxes (e. g. federal and state income taxes), and the cost to exercise (e. g. commissions and fees) are deducted

Actual gross sale proceeds at time of order execution may be different.

The estimated amount you are scheduled to receive on your next interest payment from the issuer of the bond.

Estimated Liquid Net Worth Refers to cash and any assets easily converted to cash, such as money market fund shares, U. S. Treasury bills, and bank deposits. Your liquid net worth is also referred to as your liquid assets.

Estimated Monthly Payment The amount that will be paid based on the number of shares currently owned, not including any open orders. Additional purchases will increase the monthly payments, while redemptions will decrease the monthly payments.

Estimated Net Cash Proceeds This is an estimate of the proceeds from an exercise and sell order. Esta estimación muestra todos los ingresos después de que se deduzcan las estimaciones de costos o impuestos.

For an exercise and sell order for incentive stock options. this is an estimate of the proceeds after the estimate for the cost to exercise (e. g. commissions and fees) is deducted

For an exercise and sell order for non-qualified stock options. this is an estimate of the proceeds after the estimates for the exercise cost. total taxes (e. g. federal and state income taxes), and the cost to exercise (e. g. commissions and fees) are deducted.

Actual net cash proceeds at time of order execution may be different.

Estimated Net Worth Refers to the amount by which assets (excluding residence) exceed liabilities. For example, an individual's net worth is the total of all assets (excluding residence) such as stocks, bonds, and other securities minus all outstanding debts such as revolving credit loans.

Estimated Number of Options to Exercise The estimated number of options that must be exercised and shares sold to acquire the dollar amount that you entered as the Cash Proceeds Desired. The calculation is made based on the grant price and stock price that you entered in the calculator.

Estimated # of Shares Purchased from Company Matching Contributions The estimated number of shares to be purchased in an Employee Stock Purchase Plan in the selected offering period with funds from your employer's matching contributions. This amount is calculated as:

Total Company Contribution/Estimated ESPP Purchase Price .

Estimated Number of Shares Purchased from Employee Contributions The estimated number of shares to be purchased in an employee stock purchase plan in the selected offering period with funds from your payroll deduction contributions. This amount is calculated as:

Total Employee Contribution/Estimated ESPP Purchase Price .

Estimated Principal Amount The estimated principal payment you are scheduled to receive from the issuer of the bond. This usually happens on the maturity date. However, if the bond is callable you may receive your principal earlier than the maturity date.

Estimated Purchase An option available on the Estimate Purchase screen that enables you to view the details of an estimated purchase of company stock during a specific offering period of your Employee Stock Purchase Plan.

Estimated Residual Balance After Purchase The estimated dollar amount remaining in an employee stock purchase plan after the purchase for an offering period.

Estimated Results for Cash Proceeds Desired This is a section that displays on the Stock Option Calculator when you select Cash Proceeds Desired as the calculation method. This section includes the following resulting estimates of your calculation, in order from top to bottom:

Estimated Results for Exercise & Hold Order This is a section that displays on the Stock Options Calculator when you calculate the hypothetical proceeds from exercising options. This section includes the following resulting estimates of your calculation, in order from top to bottom:

Estimated Results for Exercise & Sell Order This is a section that displays on the Stock Options Calculator when you calculate the hypothetical proceeds from exercising options. This section includes the following resulting estimates of your calculation, in order from top to bottom:

Proporción estimada de acciones Esta es una estimación de los ingresos de una orden de ejercicio y retención. Esta estimación muestra todos los ingresos antes de deducir las estimaciones de costos o impuestos.

For an exercise and sell order for incentive stock options. this is an estimate of the proceeds before the estimate for the cost to exercise (e. g. commissions and fees) is deducted

Actual share proceeds at time of order execution may be different.

Estimated Stock Plan Purchase Price The estimated price for one share of stock purchased through an employee stock purchase plan. This amount represents the amount paid for the stock, minus any discount allowed by the plan (if applicable). Refer to your plan's rules for plan purchase calculations.

Estimated Taxable Equivalent Yield For municipal bonds, this is an estimate for the interest rate that must be recovered on a taxable security to provide the same after-tax return as that earned from a tax-exempt investment.

The actual taxable equivalent yield for the security may be different.

Estimated Taxable Income This is an estimate of the income on which you would pay ordinary income tax after an exercise and sell or an exercise and hold order for non-qualified stock options executes. It is also an estimate of the income tax on which you would pay ordinary income tax after vesting in a restricted stock award (RSA).

El ingreso imponible real al momento de la ejecución del pedido puede ser diferente.

Estimated Taxes An estimate of the income tax that would be withheld when an exercise and sell or an exercise and hold order for non-qualified stock options executes. Actual taxes at time of order execution may be different. This may also describe an estimate of the taxes due when your restricted stock awards (RSAs) vest.

Estimated Tax Withholding Estimated amount of the tax withholding due when your restricted stock awards vest. This value is calculated using the previous business day's closing price and the tax rates provided by your employer (if any).

Costo estimado total Se trata de una estimación del costo total del ejercicio de opciones sobre acciones que se deduciría de los ingresos cuando se ejecute una orden de ejercicio y retención. This estimate is the total of the estimated exercise cost plus the estimated tax amount .

Actual total cost at time of order execution may be different.

Estimated Total Cost to Exercise Includes the costs of all commissions or fees, tax withholding, and the exercise cost (grant price multiplied by the number of stock options you are exercising) payable when an order to exercise stock options executes. The actual total cost to exercise at the time of order execution may be different.

Estimated Total Gain from Purchase The estimated dollar gain (or loss) that would result under your employee stock purchase plan if all the shares accumulated in the selected offering period were sold. The amount is calculated as follows:

Estimated Total Gain from Purchase = number of shares purchased (current market price) - (number of shares purchased * estimated purchase price)

Refer to your plan's rules for how gains may be calculated.

Estimated Total Options Outstanding Value This is an estimate of the total value of the number of options that have not been exercised including options that are vested and unvested .

Estimated Total Tax Withholding This is an estimate of the income tax that would be withheld when an exercise and sell or an exercise and hold order for non-qualified stock options executes. Los impuestos reales retenidos en el momento de la ejecución del pedido pueden ser diferentes.

Estimated Total Value of Exercisable Rights The estimated value of your exercisable rights across all of your stock appreciation rights grants. This value is calculated using the last market closing price for the stock minus the grant price, multiplied by the total exercisable rights (or zero if greater). Actual value at exercise may vary.

Estimated Total Value of Rights The estimated value of your unexercised rights across all of your appreciation rights grants. This value is calculated using the last market closing price for the stock minus the grant price, multiplied by the total rights including those that are and are not exercisable. Actual value at exercise may vary.

Estimated Unvested Options This is an estimate of the number of stock options from those originally granted that have not been held long enough for you to have right of ownership and that are not yet available for exercise.

Estimated Value An estimate of the value of your restricted stock awards. This value is calculated using the previous business day's closing price.

Estimated Value of Options Outstanding This is an estimate of the total value of the number of options that have not been exercised, both are vested and unvested stock options.

This value is calculated by multiplying the market price for the underlying stock as of the prior trading day's close by the total number of vested and unvested options outstanding.

Estimated Withdrawal Amount An estimate of the proceeds from an IRA distribution when selling all shares in a mutual fund position from an eligible mutual fund IRA.

The estimated amount is less any applicable fees and based on the total estimated value of the shares to be sold as of the fund's last available closing price.

Estimated Yield (EY) An estimate of annual yield from a specific security position over the next rolling 12 months. EY is calculated by dividing the EAI for a specific security position by the market value of the security position, which may be higher or lower than the original purchase price. See calculation example below.

EY = EAI / Market Value Example: 100 Shares of ABC Stock Price with a per share price of $19.00, Market Value = $1,900.00, EAI = $80.00

EY = $80.00 / $1,900.00 = 4.21%

Estimated YTM An estimated yield to maturity rate of return an investor may receive on a bond if the bond is held to its maturity date.

When looking up bond symbols, this field is used to enter search criteria and it has two parts:

a qualifier (equals, less than or equal to, or greater than or equal to)

la fecha

Estimation of Future Transfer This is a field on the Electronic Funds Transfer: Electronic Funds Transfer Setup screen. In this field, select a dollar range that you may commonly use when transferring funds using the Fidelity Electronic Funds Transfer service. This amount is used for one-time online account authentication only and does not initiate a transfer between Fidelity and your bank accounts.

Evaluation Point The number of days prior to expiration or at expiration used to evaluate your strategy.

Event risk The risk that an event such as a natural or industrial disaster, a takeover, or a corporate restructuring could have an adverse effect on the price of a security and any associated cash flows from coupons or dividends.

Exchange The trading exchange (e. g. New York Stock Exchange) where a security is primarily traded.

The lowest price a dealer or market maker will accept for a security.

The highest price a prospective buyer would pay for a unit of the security (or underlying security).

Exchange by Reallocation An exchange of investment options within an annuity that affects the distribution of investment options across the entire contract.

Exchange Call The amount by which the margin equity in the account has fallen below the NYSE minimum requirement (currently, 25%). Generally, exchange calls must be met (money added to the account to bring the margin equity up to the minimum required) within 48 hours, but Fidelity may cover the call at any time. If the amount of margin equity in the account is above the minimum requirement, this value will instead be reflected as an exchange surplus (also known as NYSE Surplus).

Exchange Confirmation Notification from Fidelity that your annuity exchange order has been executed.

The confirmation lists the details of the order and an order confirmation number .

Select Print from your browser's File menu to print a confirmation screen.

Note: Fidelity will also send you a paper confirmation through the U. S. mail after an order has executed.

Exchange Positions This refers to the exchange of assets from one annuity investment option to one or more investment options. This also refers to changing the current percentage allocation of an annuity portfolio.

Exchange Surplus The amount of margin equity in the account above the NYSE minimum requirement (currently, 25%). Also known as NYSE Surplus. If the margin equity in the account falls below 25%, this value will instead be reflected as an exchange call .

Exchange to Symbol For a mutual fund exchange, this is the symbol for the mutual fund in which you want to buy shares.

Excluded Excluded bonds are those secondary bond offerings that would normally be filtered out from being displayed on Fidelity. com. They are filtered out because they have failed the Price Test beyond the level that identifies a bond as an Other offering. That means they are priced from 2.6% to 10% away from the last closing price reported by our third-party pricing vendor.

Ex-Dividend Refers to the interval between the announcement and the payment of the next dividend. An investor who buys shares of a stock or mutual fund on the ex-dividend date or after is not entitled to the dividend.

Execution Price The value per share in US dollars (or the local currency for products traded in foreign currencies) at which a trade filled. For equities or options, if a trade receives multiple executions, the execution price is displayed for the order as a weighted average. The weighted average is calculated by taking the total dollar value of the trade and dividing it by the number of shares traded.

Exercisable The total quantity of rights, grants, options, or securities for which you are vested and have the right to exercise. On Stock Appreciation Rights (SAR) screens, the Summary screen displays the total exercisable amount across all of your grants. The Summary | Vesting Schedule and Details screen displays two exercisable balances: the total quantity, and the total estimated current value of that quantity.

Exercisable Options The number or current estimated dollar value of stock options for which you are vested or have the right of ownership and that are eligible for exercise. either for a single stock option grant or across all of your grants.

Exercisable Rights Across all of your stock appreciation rights grants, the total number of vested rights which you own and which are eligible for exercise.

Exercise The purchase of stock granted through an employee stock option plan .

Ejercicio y Retención Una forma de ejercicio de opciones sobre acciones en la que ejercita su opción de adquirir acciones de su empresa y mantener la acción. When you do this, you need to have funds available* to pay the exercise cost and required tax withholding (if applicable).

* Funds must be available through cash on deposit or you must be approved for margin to borrow against other securities in your stock option brokerage account.

Exercise and Sell A form of stock option exercise in which you exercise your option to acquire shares of your company stock and sell the stock immediately. Los ingresos en efectivo de la venta se utilizan para pagar el costo del ejercicio, la retención impositiva requerida y las comisiones y comisiones de corretaje. This form of exercise does not require you to provide cash for the exercise

Exercise Cost The cost of exercising your stock options. El costo de ejercicio se calcula multiplicando el precio de la subvención por el número de opciones sobre acciones que está ejercitando. Exercise cost does not include tax withholding or any fees or commissions that may apply.

Exercise Cost Due This is the total amount that is due to pay for stock options you have just exercised. Also, refer to exercise cost .

Exercise Date The date on which you elect to exercise your options, or the date you used your options to buy shares of the underlying security .

Exercise Order Date This is the date on which your order to exercise stock options was placed, and not the settlement date of transactions associated with your option exercise.

Exercise Price This is the price per share which you must pay to the issuer to exercise the option. The exercise price is usually set at the fair market value of the company's stock on the date of grant. También llamado el Grant Price.

The actual coupon set for the security may be different.

Expected Issue Size For a new issue fixed-income security (e. g. bonds) offering, this is the total dollar amount that the issuer would like to receive from the offering.

The actual dollar value for the offering may be different after the offering is priced.

Expected Order Period For new issue fixed-income securities (e. g. bonds), this is the expected start and end date that define the period during which you can place an order for a new issue offering .

The actual order period for the offering may be different.

Expected Price For new issue fixed-income securities (e. g. bonds), this is an estimate for the price per security offered as part of the offering.

The actual price per security that is set may be different.

Expected Pricing Date For new issue fixed-income securities (e. g. bonds), this is the date on which the issuer estimates the price for the new issue will be set.

The actual date on which the new issue is priced may be different.

Expected Settlement Date For new issue bonds, this is the estimated date on which the payment for any securities bought as part of the offering must be made.

The actual settlement date may be different.

Expected Yield For new issue fixed-income securities (e. g. bonds), this is the estimate of what the annual rate of return will be for the security.

The actual yield for the security may be different.

Expense Ratio Annual percentage of fund's assets that is paid out in expenses. Expenses include management fees and all the fees associated with the fund's daily operations.

Expiration For options, the date upon which an options contract terminates, or ends.

Expiration 1 For the multi-leg option tools, this is the expiration month you would like considered for the strike prices in your search for a particular strategy.

Expiration 2 For the multi-leg option tools, if you are considering a strategy that has multiple expiration months (i. e. Calendar Spread) this is the second expiration month or far month for the strike prices in your search for a particular strategy.

Expiration Date The date, according to the terms of your grant agreement with your company and your company's stock plan, after which you can no longer exercise your grant. Under certain provisions of the stock plan and grant agreement, such as a change in employment status, expiration date may be accelerated. For Restricted Stock, expiration date is the date on which the agreement expires.

Expiration Friday The third Friday of each month is expiration Friday. Options with the same month and year as the expiration Friday date stop trading after the market closes, and the options expire the next day, Saturday.

Expired On The date and time on which a price trigger value was met and an alert was sent. Once met, the trigger expires and displays on the Expired Triggers screen for 90 days. You may reactivate or update and activate an expired price trigger.

Extended Free Look Period Applicable only to annuity contract customers in New York and California. For all other states, refer to free look period .

The extended free look period begins after an annuity contract is purchased in New York or California. During this period, the money in the annuity is in the investment option(s) the customer selected and the contract may be canceled at any time.

Refer to the paperwork you received when you purchased the annuity for information regarding the number of days for the extended free look period.

Extended Hours Quote This is the best real-time quote for a stock eligible for trading during either of the Extended Hours sessions (the Premarket or After Hours session ) across the ECNs linked to the ECN in which Fidelity participates and Nasdaq when available.

Extended Hours quotes obtained from Fidelity. com will reflect only the prices available in the ECN, linked ECNs and Nasdaq's SelectNet, when available.

Extended Hours session quotes are available only during the Premarket session, 7:00 to 9:28 a. m. Eastern Time unless trading is halted before 9:28 a. m. and the After Hours session, 4:00 to 8:00 p. m. Eastern Time unless trading is halted before 8:00 p. m. on Monday through Friday except holidays.

This quote is displayed to the right of the Premarket or After Hours Place Stock Orders screen for reference when placing an order during these sessions.

You must have a Fidelity brokerage account to place an order during the Extended Hours sessions.

Extended Hours Session as of The date and time of the last trade of the current Extended Hours session.

Extended Hours Trading Fidelity's Extended Hours trading sessions allow brokerage account customers to enter limit orders to buy or sell stock after standard market hours through the Electronic Communications Network (ECN) in which Fidelity participates. An ECN is essentially an electronic order matching system in which investors and other market participants may participate.

The ECN in which Fidelity participates may be linked to other ECNs or dealers which will increase the potential for an order to be matched. You can place orders through the ECN using the Extended Hours Trading sessions. the Premarket and the After Hours session.

ECN orders for the Premarket session can be placed and executed from 7:00 a. m. to 9:28 a. m. Eastern Time.

Orders in the After Hours session can be placed and executed from 4:00 to 8:00 p. m. Eastern Time.

You must have a Fidelity Brokerage® account to place an order during the Premarket or After Hours session.

Limit orders to buy and sell stocks are matched electronically, if the potential for a matched transaction exists. The ECN will operate during regular trading hours and during the Premarket and After Hours sessions. However, you can only enter orders through Fidelity for execution via the ECN during Extended Hours trading sessions.

In the Extended Hours Trading sessions, you can trade all NASDAQ (National Market and SmallCap) and listed securities.

If a stock that normally trades on the ECN closes on a trading halt in its primary market, or trading is later halted by its primary exchange or a regulatory authority, trading of that stock will also be suspended on the ECN.

Extended Hours trading is currently available through the ECN via Fidelity's Web site and FidelityAnywhere.

Once you place a limit order into the ECN, the order will be matched on a first come, first served basis, at the price you specify.

Extraordinary Redemption A provision which allows a bond issuer the right to call its bonds before maturity if certain specified events occur (as specified in the offering statement), such as natural disasters, cancelled projects, to almost anything else.

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Ernst & Young 401k Investment Options – US Stock Funds

This post is part of a multi-post series in which I review the Ernst & Young 401k Investment Options. To see the other posts in the review, check out the links below.

Overview of the US Stock Fund Choices

Below is a list of the domestic equity funds that are available within the EY 401k plan. There are ten funds in total, many of which overlap in terms of size (market cap) and style (growth vs. value).

In my opinion, having ten US stock funds in the lineup is both confusing and unnecessary. Due to the volume of choices, I would imagine that many of you have either:

a) Avoided making a decision because of a lack of time or interest in picking a fund (meaning you accepted the default investment choice: the Vanguard Target Retirement Fund for your particularly retirement date)

b) Made a less than confident decision based on either past performance, the fund’s Morningstar rating, or some other mutual fund metric (none of which have been shown to consistently or reliably predict future performance)

It would be one thing if all ten funds fit neatly within each of the nine boxes of the Morningstar Style Box. but that is most certainly not the case.

Even if it was, it still wouldn’t be a justification for having ten US stock funds, but at least it might make sense to the average investor.

Instead, the lineup includes seven large cap funds (primarily of the growth variety), one mid cap fund, and two small cap funds. Within the group, eight of the funds are actively managed and the other two are index funds.

Narrowing Down Our Choices

As I mentioned previously, the fact that you as an employee have to sort through ten funds in the domestic equity space to build your 401k portfolio is somewhat frustrating.

Unless you have an investment background, it can be difficult to tell the funds apart.

The fund names themselves often tell you very little and even their description can leave you scratching your head. Even worse, if you pick a fund based on its past out-performance, you are likely to be disappointed, as past performance by itself is a poor predictor of future returns.

So how do we go about whittling down ten funds into a few that we might want to consider?

Fees Matter. Keep them Low.

One of the first and primary things you need to consider when evaluating a fund is its cost. Specifically, we’re looking for the annual expense ratio charge by the fund.

Overall, the US stock funds EY has decided to include are relatively low cost. All of them carry below average expense ratios relative to the overall mutual fund universe (where the average mutual fund costs about 1% to 1.25%).

However, the gap between the cheapest fund and the most expensive fund is still pretty wide: 0.02% for the Spartan® 500 Index Fund (FXAIX) all the way up to 0.80% for the T. Rowe Price New Horizons Fund (PRNHX).

That’s a 0.78% difference, which would equate to $780 per year for a $100,000 portfolio. Even worse, the effect of that expense compounds every year, which can cost you tens of thousands (or even hundreds of thousands) of dollars over your investment career.

Thus, we know we need to be aware of the costs we’re being charged in our 401k and a nod most certainly goes to the lower cost options.

Active vs. Passive

In addition to cost, it’s important to look at the management style of the fund and the level of diversification.

Not surprisingly, there is a high correlation between the way that a fund is managed (active vs. passive/index) and its cost: actively managed funds are typically much more expensive than than their passively managed counterparts.

This fact pattern is no different here, as the two lowest cost investment options are both index funds: the aforementioned Spartan® 500 Index Fund (with an expense ratio of 0.02%) and the Vanguard Small-Cap Value Index Fund (with an expense ratio of 0.08%).

As a result, our focus on keeping costs low is intertwined with the way that a given fund is designed and managed.

We also want to look at the diversification of the fund, namely the number of stocks it invests in. This is another area where index funds typically have a leg up.

In this case, several of the actively managed funds are pretty concentrated, holding as few as 70 stocks. Conversely, the two index funds hold 500 and approximately 800 stocks respectively. Holding more stocks greatly reduces risk in the portfolio.

Summary of US Stock Fund Choices

Based on the brief discussion above, low cost, passively managed funds obviously represent the building blocks of a successful portfolio.

So it should come as no surprise that the two core funds that I believe are the best options are the Spartan® 500 Index Fund and the Vanguard Small-Cap Value Index Fund.

For most most portfolios, an S&P 500 index fund is a good foundation from which to build a diversified portfolio. So good, in fact, that it’s the primary investment that Warren Buffett recommends (see p.20, paragraph six of Berkshire Hathaway’s 2017 Annual Letter ).

I would have preferred to see a total US stock market index fund (like Vanguard’s Total Stock Market Index Fund ), since it is equally as low cost and even more diversified, but the S&P 500 is still a good option.

However, in order to diversify a US stock portfolio away from the very large companies that make up the S&P 500, EY has wisely included a small cap value fund, the Vanguard Small-Cap Value Index Fund.

This fund invests in companies that are much smaller than those in the S&P 500 and also companies that have lower relative prices (based on metrics such as price/earnings, price/book value, price/cash flow, etc.).

While there are other small cap value funds that I think offer some incremental benefits (either in terms of diversification or structure), the Vanguard fund is still a superior choice to most other offerings.

Similar to the Spartan® 500 Index Fund, the Vanguard fund offers a mix of good diversification, low costs, and index management, all of which are typically very good qualities for an investment to have.

So all things considered, most investors should be able to utilize a combination of the two index funds in order to construct the US stock component of their portfolio. The net result will be very low in cost, nicely diversified, and relatively easy to manage.

Best Options (Top Picks in Bold)

Spartan® 500 Index Fund – Fidelity Advantage Institutional Class (FXAIX)

Vanguard Small-Cap Value Index Fund Institutional Shares (VSIIX)

Have Questions about Ernst & Young’s 401k Plan?

If you have questions about Ernst & Young’s 401k investment options or anything else, please feel free to post a comment below or contact me directly. Likewise, if you find any mistakes or errors in this post, I want to know. Just send me a quick note with the details and I will be sure to look into it.

As always: The information and opinions contained in this post do not constitute an offer or a solicitation of an offer to buy or sell any securities or financial instruments or to provide any investment advice or service. Past performance is not a guarantee of future results and there is always the risk that an investor may lose money. Prior to making any investment decision, you should consider your specific situation and seek independent advice.

Sobre el Autor

Jonathan is the founder and editor of Big4Benefits. com, a site dedicated to helping employees of Big 4 accounting firms to be more successful financially and grow their wealth. Jonathan writes about the 401k, pension, and other benefits offered by EY, Deloitte, PwC, and KPMG.

Jonathan is also the founder and president of Wealth Engineers. a provider of low cost portfolio management and financial planning services. He specializes in working with busy professionals, advising them on all aspects of their financial picture. Jonathan is also regularly quoted in financial and news publications, such as The Huffington Post, Yahoo. U. S. News & World Report, and Bankrate.

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Our Growth DNA Model for family business

Next generation planning

What decisions need to be made when you hand over a healthy company that is equipped for the future? How should the course be set so that the next generation can continue running the company and maintaining its competitiveness in the market? Do you have a family member who would be a suitable successor, or does one of your senior managers have the potential to assume control?

Generational change in family businesses is a highly complex process. It often constitutes a real balancing act for everyone involved – family, company and owner. In addition to practical objectives and technical aspects, the issues to resolve always have an emotional component. Alongside fiscal, legal and financial questions, the very personal aims and values of the entrepreneur and family members are also of prime concern.

Often, family interests are not the same as company interests. While founders may want the company to keep on growing, members of the next generation may be keen to make their own way in the world, or simply may not be interested in taking on the responsibility of running the family business.

Despite succession planning being acknowledged as a high-priority issue, many family businesses admit that they have no detailed hand-over plan in place to maintain the business, find the right person to take the lead, and deal with the complex tax and legal environment. The communication and introduction of the successor is also of critical importance in maintaining a trusted relationship with important stakeholders, such as employees, customers, vendors and banks. For the owner of the company, succession planning is a once-in-a-lifetime process. In order to organize a successful generational change in your company and secure your life’s work, you must establish a suitable plan at an early stage.

Leaders need to consider a number of options. These include searching within the family circle and among the company’s existing managers – and, possibly, considering external candidates.

Succession planning is always an emotional subject. It depends on personal relationships and abilities, which may not go hand in hand. Your choice of successor might be also controversial.

It is important to manage expectations and discuss matters on a professional level. External advice can remove personal interest and help to ensure that decisions are based on what benefits the company and the family.

To avoid any complications or ascendency arguments at an already stressful time, it is vital to ensure that a formal hand over and succession plan is in place, or at least under development. Such plans should include agreed contingency management arrangements, in case of an event such as death or incapacity. This ensures fairness and transparency for all family members.

Future management governance

The most successful family businesses have strong governance procedures and written agreements. These documents align the family interests with the business strategy. They will codify many important internal processes, such as the definition of voting processes and the appointment and power of senior executives. They may place restrictions on the way a family member can work in the business and set out how their performance should be evaluated.

In addition, stringent governance on how shares can be sold, both inside and outside the family, needs to be established. This will ensure that it will be possible to raise fresh capital for the business or release cash for family members.

These and other rules governing the roles and responsibilities within a family business often take the form of a family charter.

Inheritance and estate transfer tax

The variety of rules governing inheritance, wealth and gift taxes within different country jurisdictions can be complicated. But they will help determine the amount of wealth you will be able to pass on to the next generation.

By their second generation, family businesses usually have both domestic and international operations – and members of the family can have assets all over the world. Perhaps the most important thing that family firms can do is to start planning early to find the right solution. They should even look decades ahead. EY will be able to advise you on how to transfer your estate in the most tax-efficient manner.

In all countries, tax is liable on the basis of the acquired assets of individuals. Tax rates depend on the country in which the domiciled assets are inherited by or gifted to non-domiciled individuals. Scalable rates apply, depending on the tax class of the acquirer and the value of the acquisition. Exemptions range dramatically, and some countries will apply a flat tax rate on death. It can sometimes be advisable to move to another country to take advantage of beneficial tax regulations. Your tax advisor can help you understand international issues and opportunities.

Family businesses need an entrepreneurial spirit that succeeds for generations. They need to harness the values and innovative mindset that established the business, to create future opportunities. Many entrepreneurs will find it difficult to hand over control – especially if they don’t see the same kind of driving passion in their successors, or if they are simply too busy with the day-to-day running of the business to pass on their skills and knowledge.

However, this is a short-term view. Sharing knowledge with younger family members and training them in the necessary skills may enable the company to stay in family hands. Shadowing a “mentor” and discovering what they do, often engages the young heirs to take an interest in a wider variety of jobs within the business.

Many business colleges run social and educational programs to help family businesses prepare young adults for the working world. In addition, EY’s exclusive Junior Academy program helps them to explore their potential and introduces them to the challenges of running a family business. The program enables them to meet their peers from around the world and discover for themselves the excitement of becoming an entrepreneur.

How a company is managed can be affected by conflict between family members over the way money and power is distributed, claims of favoritism or disagreements over succession.

Often a good way to make major decisions is to set up a “roundtable,” or have a family board, where business is dealt with on a regular basis by the family (and non-family executives, where applicable). In many cases, a mature family business with many family stakeholders would be wise to develop an integrated family strategy that covers roles, responsibilities and the decision-making processes.

When there is conflict, the introduction of an external third party without emotional involvement or bias can be the answer. A trusted advisor, such as EY, can introduce different approaches and act as a professional mediator in both personal and business matters.

How EY can help you with your succession planning

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with your family, sensitively discussing exactly what you want to happen in the future. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify which route to take in tax and legal issues

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, EY has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. When looking at international issues, our offices in over 140 countries can provide you with the local support you need.

We confront the growing complexity of succession planning and the task of protecting your family wealth from a variety of angles. You can choose from the following bespoke services:

Asset and tax analysis, and implementation of supplementary testamentary arrangements

Succession planning in line with legal and fiscal requirements, with consideration for tax on earnings and inheritance tax

Drafting wills, inheritance contracts, marriage contracts and inter-vivos gifts

Help with the execution of wills and guidance on inheritance disputes

Family office advice

Creation and management of foundations and trusts

Neutral mediation in the case of disputes

Company valuations and sales

Support to help develop a tailored family strategy and family charter

EY’s tailored services

EY offers a wide range of professional business services specifically aimed at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help you meet family challenges and make plans to help you succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page

Effective tax management

The ever-changing tax landscape has a significant impact on strategic planning for family businesses. Whether the focus is on investments, financing and liquidity, or plans for growth or expansion, tax law factors heavily in the decision-making process.

With tax authorities across the globe seeking to maximize revenues, it is more important than ever to ensure that your executives understand the tax implications of all the business decisions they make – as well as the structure, processes and policies related to tax controversy and risk management.

The tax and legal issues facing you and your family are extremely complex. Personal taxation has never been so multifaceted, and failing to consider all the elements could prove costly to your family and your business.

Wealthy individuals have increasingly international lifestyles, with various business interests, and homes and assets located all over the world. Tax liability can arise in a number of different countries on the basis of residence, location of assets, nationality or domicile. Failing to consider the international nature of your affairs can lead to erosion of your wealth and even affect the ultimate disposition of your estate. A holistic approach to your tax planning will help mitigate problems, both now and for future generations (for inheritance tax: see our information on “Next Generation Planning”).

EY’s team of lawyers, accountants and chartered tax advisors can work with you to help reduce your tax burden. Our approach can be tailored to your lifestyle and family circumstances. Our professionals evaluate all the relevant commercial, legal and financial factors and constraints, in light of your unique circumstances, giving you peace of mind and letting you concentrate on improving your business.

Proper structuring of your tax function can free up working capital, allowing you to take advantage of market opportunities and maximize your asset portfolio. Whether you are restructuring the business, making an acquisition, refinancing or simply focusing on mitigating risk, you will need to identify the most efficient tax structures.

Tax departments are increasingly involved in the strategic planning and decisions traditionally reserved for the boardroom. Having your tax function closely aligned with executives on the board will ensure that your business is taking full advantage of all available tax credits and subsidies.

It is important to anticipate global tax and legal changes and their implications for your business. This will ensure that you are well positioned to take advantage of available fiscal stimulus and climate change program tax credits, as well as other tax incentives, including corporate rate reductions, relief for losses and “green” research and development initiatives.

EY will work with your company executives to identify appropriate tax planning opportunities, point out potential areas of exposure and recommend ways to improve the returns on investment portfolios. Our tax professionals draw on their diverse perspectives and skills to give you seamless service through all the challenges of planning, financial accounting, tax compliance and maintaining effective relationships with the tax authorities.

Tax controversy can arise in many circumstances, but especially in estate transfer and succession. This can stem from complex tax laws, or from issues with a range of answers, such as valuation or allocation methods. Tax controversy costs can escalate rapidly, not only because of costly litigation and representation, but also because of penalties.

Incorporating international tax controversy and risk management into your strategic planning can pay dividends, as well as deliver greater certainty and flexibility. You may be able to release cash, reduce your tax compliance costs and prevent your staff from spending valuable time managing complex tax controversies.

International issues and transfer pricing

In addition to the structure, processes and policies related to tax controversy and risk management, your board should establish a clear strategy for cross-border tax controversy and risk management, which is in line with your performance improvement and expansion plans. It is advisable to conduct tax compliance and risk assessments for your current international tax situation, and proactively seek information on potential tax policy changes and international disclosure agreements that may affect your current and future international footprint.

The following are just a few of the considerations that can significantly affect your bottom line:

&toro; Ensuring subsidiary losses are being utilized in the most tax-effective manner

&toro; Exploring opportunities to reduce indirect taxes, such as customs and duties or variable annuity

&toro; Reviewing foreign exchange exposure and hedging issues

&toro; Exploring cash repatriation strategies or tax supply chain modifications

EY’s transfer pricing professionals can help you understand the tax implications of your business transactions, whether acquisitions, disposals, refinancing, internal restructuring, company integrations or initial public offerings. This will help ensure that your transfer pricing agreements and documentation are consistent and in line with your international operations and investments.

Family trust management

As family businesses grow and the number of dependents increases, the tax implications of estate transfer can be hard to navigate. By proactively managing your tax planning and giving careful consideration to succession-planning options, you can reduce your tax burdens, exposure to tax controversy and costly litigation.

Good trust management will enable the family to spread its risks and manage other investments as efficiently as possible. The tax benefits offered by trusts can be attractive, but strict rules need to be followed to ensure that the transactions are not subject to inheritance or gift tax.

A trust can also help to ensure that all the family members are treated fairly financially, regardless of the dynamics of the family business.

As an independent tax advisor, we can help you to establish and manage your family trust, helping you identify the most tax-effective options for your family’s wealth.

How EY can help you manage your tax effectively

Our extensive experience with family and entrepreneurial businesses enables us to develop and implement approaches for effective tax management. Together, we can:

1. Determine your requirements

2. Survey the current situation, including tax functions and legal policies

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

Our International Tax Group is the largest in the world, with offices in over 140 countries. It provides you with local support and helps to ensure an efficient review of your tax provisions wherever you do business.

Our customized tax services include:

Business tax accounting, compliance and advisory

Personal tax and other wealth tax management services

Advice on succession planning in line with legal and fiscal requirements, with consideration for tax on earnings and inheritance tax

Advice on drafting wills, inheritance contracts, marriage contracts and inter-vivos gifts

Advice on the execution of wills and guidance on inheritance disputes

Advising family offices on tax issues related to wealth management

Tax due diligence on mergers and acquisitions

Advice on legal issues, such as stock exchange legislation, the law relating to takeovers and employment law

Help in tax optimization of investment decisions, nationally and internationally

Help with international tax law and legislation compliance

EY’s tailored services

EY offers a wide range of professional business services aimed specifically at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to explore ways to reduce your tax burden and increase tax benefits. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page .

Family governance

No one can see into the future. But sometimes, you need to take steps to ensure that your business is able to evolve and strengthen; especially if your company is growing quickly and encountering complexity.

What will happen to the business after you are no longer around? Who will take over and how smooth will the handover be? Whether it’s your family or your management who takes control, the company structure will need to change fundamentally. So how can you ensure that the business will continue to function successfully?

Would your business be ready for a sudden change of leadership caused by illness or death?

Many family companies revolve tightly around the owner. Such an arrangement brings complications when a succession is imminent. Choosing a successor from within your family is not always possible. Your heirs could lack the desire and willingness to assume the entrepreneurial risk, or they may not have the necessary qualifications and experience to manage the company.

In an effective continuity plan, the family business owner appoints a team – usually from within the business, but often with the addition of an external advisor – that has the capabilities and desire to take over the mantle of running the business, if necessary. The team members must be clear about the roles they need to play.

Important succession decisions should be legally documented and disseminated long before they need to be implemented. Succession takes place at an emotive time, even when disputes over power or equity shares are absent. But careful planning can ensure a smooth transition. If the person leaving is the driving force behind the business’ success, it may be a good time to consider selling the company, or arranging for a management buyout, alliance or merger with a similar company.

Another feature of good contingency management is ensuring that the business can continue after a man-made or natural disaster, such as terrorism or an earthquake. Many companies would simply cease to exist if they lost their headquarters, their key company information or their experienced people. Renewal of infrastructure is fairly simple to arrange. But could you replicate generations of knowledge and customer information? Sensible precautions include seeking informed advice about recovery systems, and ensuring that knowledge and data is recorded and can be shared.

A family charter is extremely useful if a number of extended family members have an interest in running the business or if there is a family trust. A charter is even more important if there are non-family members involved in running the business.

The charter is an official document that states the agreed aims of the business. It will identify family roles and relationships, set out policies that define the family’s involvement in the business, establish which people will have a say in which business decisions, set out who is responsible for which activities, and codify how appraisals will be conducted. It will also tackle the way the business supports training to develop family business skills, and outline procedures for resolving family disputes.

In the charter, it is vital to anticipate the short - and long-term future of the business.

Non-family executive appointments

Making the transition from family to non-family senior executives is never going to be easy. However, it’s important to keep an open mind and try to decide who really is the best person for the job.

A series of appointment opportunities can help to drive top-line growth. Éstas incluyen:

Identifying key people within your company and ensuring their retention by making them a shareholder

Hiring new people with complementary skills that enable the development of products or services, or fill gaps in your current capabilities

Persuading people with great customer relationships to join your team and bring their contacts with them

You may wish to consider separating family ownership and management completely or partially. Another option is inviting non-family executives and non-executives onto the board to fill positions traditionally held by family members. Clear exit plans for founders and early investors also need to be developed and executed, without affecting the strategic direction of the company.

Organization design is the reshaping of the structure of the company and the roles of its management and employees. To be effective, this structure should be aligned with the overall strategy of the business and aim to improve business effectiveness and development.

The planning should take into consideration not only the key skills of your people, but also leadership ability, behavior patterns and team effectiveness. The organization plan should give a clear delineation of management roles, with the escalation route throughout the company from “shop floor” to executive level immediately obvious. Once the new design has been agreed by the board, everyone in the company should be made aware of the changes via clear communications explaining why they have been made.

It can be difficult for some family businesses to make fundamental organizational changes without upsetting family members. In this situation, consider using an independent external advisor who can take a holistic view of the company’s strengths and weaknesses.

As a family business, you can take advantage of your unique governance structure to respond quicker to market opportunities and beat the competition. If your board decides to partner with another company, you can do so without having to consult external shareholders. However, this doesn’t mean that you should take too many risks.

Your board will be responsible for enhancing governance and transparency, complying with regulations and understanding the impact of transactions and structural changes on staff and customers.

Mergers, collaborations and acquisitions

Identifying acquisition opportunities and forming partnerships is critical for companies that wish to grow sustainably and become a market leader. Exceptional family businesses will be able to identify win-win situations and utilize their business networks to unlock the doors to value-adding partnerships. Such moves must be aligned to business strategy, focused on customer satisfaction and enjoy the active support of investors.

Making the right strategic acquisitions or divestments will maximize your long-term value and returns. You should also evaluate the benefits of licensing, franchising and joint venture opportunities.

Collaborating with complementary companies can drive innovation and broaden knowledge – keeping both companies ahead of the competition. It might also be beneficial to merge parts of the organizations to create an entity that will retain customer loyalty and build a successful brand.

To guard against expensive mistakes, companies should conduct detailed financial and commercial due diligence, risk evaluation and post-merger integration of systems, people and cultures. Keeping employees informed about major changes and reassuring them about potential overlaps will help retain their commitment.

How EY can help you to prepare your future management structure

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with your family and management team to determine how we can help you prepare your business for the future. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify opportunities for improvement

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

As an independent advisor, EY can give you detailed advice about the ways you can influence and regulate your future management structure. You can choose from the following bespoke services:

Strategic and organizational advisory

Company and portfolio value assessment

Mergers and acquisition project management

Legal due diligence and guidance

Drafting and negotiating contracts and family charters

Organizational design processes

EY’s tailored services

EY offers a wide range of professional business services specifically aimed at the unique requirements of family businesses. We know that one size does not fit all, so our services are personalized to your family.

We welcome the opportunity to help you prepare your business for the future and create a management structure that will help you to succeed for generations. For more information on the ET Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page .

Managing capital

Family businesses are faced with increasingly complex challenges as they seek to manage their capital.

Traditionally, family businesses have been known for their careful management of cash and their ability to fund growth plans without debt or equity fund-raising. But, as competition for growth becomes more intense, how can family businesses maintain control while ensuring that they have capital at their disposal, if they wish to expand their business through acquisition?

Prioritizing your capital management

Many family businesses are realizing that a strong capital agenda needs to be at the heart of all strategic boardroom and management decisions. Your capital agenda should be aligned with your overall corporate goals. It will impact upon key business drivers such as growth, finance and operations. While strategies and approaches will vary from company to company, one point is compellingly clear: by relying on traditional sources of capital, you may be providing your competitors with an advantage.

To address our clients’ capital agenda needs, EY has developed insights into what we see as the four key dimensions of the capital agenda:

R aisin g capital: assessing future funding requirements and sources

Optimizin g capital: driving cash and working capital and managing your assets

These four dimensions allow for a strategic discussion of the options available to you and the family business. This will help you to make informed strategic capital decisions, both in the short and longer term, that will sustain the healthy growth and performance of your business.

A family business’s ability to access liquidity, manage and release cash and control costs, is essential to preserving capital. Sound cash flow management and forecasting practices are critical to the long-term survival of the business.

For family businesses, when the majority of funds may be tied up in the physical business, optimizing the use of available cash can be a challenge.

Attention should be given to the key drivers of efficient capital allocation: injecting greater discipline into operational efficiency and focusing on identifying opportunities for releasing excess cash.

Greater rigor can help identify instances of inefficient capital deployment and help assess alternatives.

Benefits can be gained from reviewing and optimizing your family’s and the family business’s investment portfolio. For example, do all of your business subsidiaries bring in the required returns? A series of acquisitions can also introduce a complex legal and governance structure. But how can you organize the business to improve working capital, releasing cash and optimizing tax and corporate structures?

Portfolio reviews can be useful to determine the right mix of developed and rapid-growth markets assets, as well as between mature products and new product development. Overall, the goal is to inform buy, hold or sell decisions, as well as to improve the timing of corporate transactions.

Access to capital for funding growth is a key concern for family businesses. For many, it will be their number one priority. You may already be looking ahead, and considering new investments, and may need to negotiate and secure funding to support your business goals.

The financial crisis and the reform of business taxation bring greater demands on corporate finances and increase the importance of a sustainable capital structure. Lenders are imposing more stringent conditions on loans, with greater transparency required of businesses. This makes it increasingly important to optimize your internal capital resources, including your existing assets and cash flows. A well-considered business plan, with strong financial analysis and clear exit strategies for the investors, is essential.

It is wise to evaluate and explore innovative, alternative and diverse sources of funding, such as bond issues, sovereign wealth funds, private equity (PE), asset-backed lending, initial public offering (IPO), debt factoring and disposals.

An IPO is the first sale of a company’s shares to the general public. It can accelerate the growth needed to achieve market leadership. A successful listing can unlock access to financing to complete a strategic acquisition; create new market expansion opportunities; provide an exit opportunity for senior family members retiring, or other investors, and improve perceptions of your business and brand with customers, suppliers and employees.

The IPO process is complex. The requirement for planning and specialist expertise is always very high, especially when personal and family objectives must also be considered. An IPO should be a structured and managed transformation of the capital, people, processes and culture of an organization. This will involve numerous leadership challenges, and senior family business executives will need to strike the right balance between executing the IPO transaction and maintaining day-to-day operations of the company.

Depending on the objectives of existing stakeholders and management, and the attributes of the business, a sale to a financial buyer, usually a PE investment house, is an alternative to an IPO. For instance, a PE investor can provide an alternative for companies that may not be ready to access the public capital markets.

The PE investor will decide whether the investment meets its financial criteria in terms of internal rate of return and other measures of asset quality. The investor usually needs to feel that it can add value to your business, in order to increase the company’s performance or market position in preparation for an IPO to achieve its exit return aims.

Identifying the right investments, effective due diligence, integration and ensuring risk management plans are in place are all essential to successful investing. In our experience, family businesses shouldn’t wait until an investment prospect comes along to develop these processes. Investment time frames, particularly for distressed assets, are generally accelerated. Families with investment capital need to be prepared. This means screening for investment opportunities, as well as clearly allocated decision - making authority.

Acquisitions and alliances are often the quickest way to grow your business, to add extra skills and to enable you to take advantage of a gap in the market. Increasingly, acquisition or merger strategies are being pitched to investors based on expected synergies and companies are recognizing the importance of more effective integration within their acquisition strategies.

EY professionals combine an extensive global network with local industry insights to help you identify the right transaction for your organization, linking transaction strategy with business strategy. We can help provide transaction advice and focused due diligence to reduce risk, and capital-raising advice, so that you can make informed decisions that help to drive your company’s value.

How EY can help you manage your capital

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with the family and your financial team to determine how we can help you manage your capital, following an agreed plan. Together, we can:

1. Determine your requirements

2. Assess your business strategy and identify the most advantageous financial route forward

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

Advising on cost - and tax-efficient structures and strategies to maintain or establish your financial independence and entrepreneurial freedom is an integral part of the EY service. We help you make better and more informed decisions about how you manage capital and transactions in a changing world. We work with you to evaluate opportunities, make transactions more efficient and help you to achieve your strategic goals.

With experience stretching back over 90 years, EY has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you have international interests, our offices in over 140 countries can provide you with the local support you need.

Our professionals bring together a unique combination of skills, insight and experience to deliver tailored advice, attuned to your needs, helping you drive competitive advantage and increased shareholder returns. As a neutral advisor with no interest in selling any specific capital products, EY can also provide introductions to investment bankers, lawyers and other professional resources.

EY’s tailored services

We welcome the opportunity to advise you on managing your capital in ways that help you to succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page .

Sustaining growth and profitability

The long-term perspective of family businesses enables them to invest during difficult times and allows them to focus on the future health of the company, rather than on short-term survival. Strong central governance provides continuity and the entrepreneurial vigor to look for opportunities ahead. Lasting success will depend on seeing the risks, as well as the opportunities, and having a sustainable strategy for competing for a share in the world’s markets.

When your business grows to a certain size, you may need to enhance systems and processes. You may need to attract managers with strong sector knowledge and professional capabilities. You may need to drive change in the shape of international expansion, and you may need to keep an eye on costs to maintain profits and margins.

Optimize your market reach

New customer trends affect established routes to market and require new ways of thinking. To extend your market reach, you must optimize your potential in both current and new markets. Broadening your product or service mix can exploit opportunities, boost returns and mitigate risk. This may involve pioneering innovative entry strategies; leveraging your cash flow; bringing forward R&D investment; exploring new markets and exploiting existing assets, such as intellectual property, patents and licenses.

Fulfilling customer needs efficiently

For any business to grow, it is essential to put your customers first. Understanding who they are, what they want and why they buy from you, rather than your competitors, is the key to long-term growth.

As a family business, you have the ability to exploit your family “face” to build up relationships with customers and distribution channels. You can use your dominant local position to gain a deeper understanding of customer needs and apply this insight to your innovation and R&D processes. You can also use local relationships to enhance cross-selling opportunities.

To grow your business, your focus should be on increasing your offerings to your most important customers, so you hold your position against international competition. To expand globally, you will need to become the “supplier of choice” for your key customers across borders. But this shouldn’t be at the expense of margins and profit. Cost transparency, procurement and vendor management, back-office processes and resources should all be reviewed regularly to ensure that they are operating efficiently.

How EY can help you to sustain growth and profitability

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. Following an agreed plan, we can suggest tried and tested ways to improve your operational activities and performance, helping you sustain growth and profitability. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify opportunities for improvement and growth

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, EY has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you are considering international expansion or relocation, our offices in over 140 countries can provide you with the local support you need.

We look at how your business can grow and how its profitability can be sustained from a variety of angles. Our bespoke services include:

Improving procurement and providing advice on the efficiency of your supply chains

Back-office integration planning

Cost-reduction strategies

Supply chain efficiency reviews

IT systems review and ERP software vendor reviews

Market entry assessment and due diligence

Transaction advisory and post-transaction integration

Identification and evaluation of fiscal, legal, organizational and logistical opportunities and risks arising from decisions across locations

Offshoring evaluation and process design

EY’s tailored services

EY offers a wide range of professional business services aimed specifically at the unique requirements of family businesses.

We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help your business grow, so that you succeed for generations. For more information on the

EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page .

Managing and retaining talent

A company is only as good as its employees. This maxim resonates even more in our globalized world. Increased cost consciousness, market volatility, international assignments, legal requirements, tax complexities and the necessity to retain top performers present a whole host of challenges to family businesses.

To keep everyone happy, you have to maintain symmetry between your company’s interests and your employees’ expectations. The balancing act between efficient cost management and a high level of employee motivation is a challenge. You need to consider a suitable compensation mix, but also the administration costs and tax issues for both the company and your employees.

Bringing outsiders into the family circle

Although it is often seen as ideal to keep the management of your business within the family, a company sometimes requires competent and experienced managers drawn from the wider business community. Such individuals bring new skills, insight and the ability to drive positive change.

Increasing the diversity of your management background may strengthen your ability to cope with a wide range of situations. The formidable combination of your family with its historical knowledge of the business, long-term contacts and customer loyalty, mixed with the unbiased fresh thinking of a proven industry expert, can be a powerful basis for growth.

Attracting and retaining non-family talent

You may wish to consider separating family ownership and management and invite non-family executives and non-executives onto the board. This could mean re-evaluating your business model and operational structure, and hiring people from outside the family to fill skills gaps.

However, there is a widespread belief that top jobs in family businesses should be reserved for family members – regardless of skills or qualifications. In businesses that think like this, there are limited opportunities for “outsiders” to reach senior positions or to influence the direction of the business. This belief is mostly unfounded, but it does mean that family businesses may suffer from difficulties in attracting and retaining non-family senior management.

Top performers may be attracted by the longer-term aim of helping to build a lasting institution and the opportunity to contribute to the decision-making process. For many, stability and empowerment is more motivating than financial gain.

Motivating through incentives

To maintain success, you must identify and reward rising stars and top performers – and keep them in the company.

Many family business employees are enticed less by annual compensation and bonuses than employees in non-family businesses. A frequent challenge, therefore, is to devise reward structures that properly motivate managers and executives outside the family. To do this successfully, you should establish competitive benefit plans and incentives tied to key performance benchmarks.

With no shareholders to restrict actions, family businesses are in an ideal position to motivate their employees by offering a mix of financial, physical and emotional incentives. Sharing the profits of the company, both formally and informally, creates long-lasting relationships.

Alternative tax-efficient incentives include shadow stock options; performance management systems (target agreement systems, performance reviews or job evaluations); annual bonus systems linked to key performance indicators and deferred compensation. As you grow, you may need to revisit your incentive structure and ensure that you retain key staff by letting them share in your success.

Our advice on personnel issues is designed to help ensure that you help your people to fulfill their potential.

Senior managers may be accountable for building client relationships and developing the business, so they must be given the flexibility to be able to do this effectively. It’s important for your managers to feel free to innovative and to take responsibility for their actions.

It is important that you hire the right people with the right skills. Each manager’s role needs to be defined precisely, so they fully understand their responsibilities and your expectations.

Building your employee brand

The family business’s external brand can be a significant draw for potential employees. Ultimately, your “employee brand” depends on the reputation your company builds for being fair and giving employees a great compensation package.

To attract the best talent, create innovative recruitment campaigns and compensation packages. And to keep employees happy, it is important to develop or access comprehensive and flexible human resources (HR) processes. As you grow, you may be able to build a global HR function based on accumulated leading practice from all your activities and link your human capital strategy to your business objectives and vision.

Mobilizing your workforce

As markets globalize, the number of employees on time-limited international assignments is growing. So you need to keep reviewing your global mobility strategies.

For many years, EY has worked with companies that either send their employees on international assignments or have expatriates on their staff. In these cases, the employee’s tax situation requires international know-how. We advise employees on the tax and social security consequences that arise in home and host countries. If appropriate, or legally required, we will prepare the necessary documentation to help ensure that employees will continue to be covered by the social security system in their home country. In cases of dual residence, professional activities in several countries, or income from various foreign sources, we will weigh up alternatives and optimize advantages.

How EY can help you attract, manage and motivate your talent

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We have a tried and tested way of approaching your personnel challenges. We can work with you to:

1. Determine your requirements

2. Assess your current business strategy and HR policies

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

We confront the growing complexity of attracting and retaining personnel from a variety of angles. For example, we:

Evaluate personnel costs and tax-efficient benefits, from company cars to choosing the right pension scheme

Promote flexibility, by developing compensation models based on performance and outsourcing non-core areas to enable concentration of effort on key projects

Create incentives based on value-oriented compensation and employee participation models

Shape expansion and global mobility programs

Ensure compliance with tax and social insurance requirements, such as checking the clauses of employment contracts and adhering to international regulations

EY’s tailored services

We welcome the opportunity to help you realize the potential of your people and create a strong employer brand that will help to ensure that you succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page .

Culture and responsibility

There is a strong business case to be made for taking a sustainable approach. Factors such as regulatory change, evolving consumer preferences and the rising cost of energy are causing many types of business to rethink their supply chain, manufacturing and delivery processes. Global shortages of natural resources, such as water, will inevitably have a fundamental impact on many industries. Companies looking to prosper in the long run need to make preparations years in advance, and family businesses are uniquely placed to be able to plan ahead and give themselves an advantage.

The way we make, buy and use products is changing. The local market has become a global marketplace, with products from the far corners of the world readily available. For many consumers, how a product is made and the sustainability of the ingredients or components are key considerations when deciding which products to buy. Changing customer preferences has created significant drivers for action and innovation. Equity analysts now consider climate change-related factors in company valuations, translating sustainability into a new value driver distinct from a marketing strategy.

National and international polices are encouraging the shift to a low-carbon, resource-efficient economy. Keeping abreast of the growing number of sustainability regulations and business incentives across jurisdictions will prove challenging, but it is necessary for all companies, given the connectivity of supply chains and markets.

Making your business more sustainable may require you to transform your infrastructure, systems, tools, skills and processes. But if you are able to adapt quickly and effectively, it may improve your performance and your competitive advantage in the marketplace.

Carbon emission management, the choice of a low-carbon supply chain, renewable energy tax incentives, efficient low-energy electron diffraction (LEED) buildings, the implementation of green IT and investing in cleantech innovations are all important issues that should be among your board’s priorities.

Climate Change and Sustainability Services (CCaSS) is a global team within Ernst & Young, offering advisory services to help you make sustainable changes to your company that could lead to competitive advantages and reduce risk.

Corporate and social responsibility

There is a growing emphasis on corporate and social responsibility (CSR). CSR is a self-regulating determination to apply corporate conscience, good citizenship, social performance and sustainable responsibility to your business – the very fundamentals on which many family businesses were built. The goal of CSR is to embrace responsibility for a company’s activities and encourage a positive impact on the environment, consumers, employees and communities.

Customers and employees alike are often attracted by a company’s ethical commitments. These can include using local products, using renewable resources, hand finishing products, avoiding the use of cheap labor and providing excellent after-care services. The popularity and growth of “Fairtrade” products that meet agreed environmental, labor and developmental standards, encourages all companies to review their international policies and supply chains.

Stakeholder management and sustainability reporting

You can’t manage what you can’t measure. How a business defines, measures and improves performance is becoming one of the most important tasks. It is a vital component of an open and trusting relationship between a company board and all its stakeholders.

Sustainability reporting focuses on the highly charged risk areas related to a company’s environmental and social performance. It provides an objective benchmark and confirmation of the actions that a company has taken.

Regulatory requirements for reporting are different from country to country and practices vary by sector. You would be wise to take advice locally, through a global network such as that developed by EY. You may need to change your operational mindset from internal process to external stakeholder requirements and consider adopting international standards.

Family businesses differ hugely to large corporations. They tend to be underpinned by the values of the founding family. The energy of generations of family members may have gone into making the business a success. Families have an emotional connection to the company, and it can mean much more to them than a purely financial concern. They take it personally when times are hard and do their utmost to shield loyal members of staff from the negative consequences.

Fortunately, family businesses are in a unique position to take a longer view, as they are often less driven by the pressures of quarterly results and shareholder dividends. The culture of quick wins and shortcuts that can tarnish a business brand can usually be avoided.

Your business should build ethical considerations and values into its performance strategy and align it with the achievement of company goals. If you see your company vision wavering, you may consider introducing change programs that help your staff to live your vision and values in their everyday work. This is especially important for staff in customer-facing positions. A workforce that understands and shares your values can give you a competitive edge in a crowded marketplace.

To ensure that the benefits of success reach beyond the business, many families have decided to set up charitable foundations or establish a trust that manages their ongoing legacy and investments.

As well as helping the less fortunate and supporting important causes, a foundation or trust can be a tax-efficient investment and an excellent promotional and sales tool. Some family members may excel at managing and publicizing your family foundation, or relish working with beneficiaries to achieve results that reflect favorably on your family business and grow your global reputation.

EY can help you establish your own foundation or charitable institution with an appropriate structure to meet your requirements, offering informed advice to help ensure that you follow the most tax-efficient route. We can then provide practical assistance and ongoing support. Our multidisciplinary team of accountants, lawyers and chartered tax advisors can help guide you on the international aspects of charitable giving. For example, we can establish cross-border charitable structures that allow tax-free donations in various regions of the world.

How EY can help you retain your culture and act responsibly

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We can work closely with your family and your board, to explore what you would like to achieve regarding culture and sustainability. Together, we can:

1. Determine your requirements

2. Assess your strategy and how climate change, sustainability and ethical trading influences it

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, EY has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you have international interests, our offices in over 140 countries can provide you with the local support you need.

We confront the growing complexity of culture and responsibility issues from a variety of angles, examining the subject from both business and personal perspectives. Our services include help and advice on:

Sustainability reporting and reporting improvement

Low carbon transformation and performance improvement

Renewable energy tax incentives

Supply chain from a sustainability perspective

Cleantech innovation

Internal audit services for stakeholder communications

Establishing and managing a charitable foundation

EY’s tailored services

We welcome the opportunity to help you promote your culture and social responsibilities in ways that enable you to succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page.

Balancing risk

Risk is an important part of any business. Without taking risks, growth would be impossible. However, the leading companies are not those that take more risks, but those that understand and control the risks they are taking. Good risk management leads to more confidence, better decision-making and sustainable growth.

Our Growth DNA of Family Business model identifies the many different aspects of running a business that have risk associated with them. For example, if you have not planned for succession or future management changes, you are at risk of the business suffering from a loss of direction and problems arising through ownership disputes. If you are not making sustainability and ethical trading part of your business strategy, you may risk damaging your company culture and brand values, and miss out on potential competitive advantages. And if you are not identifying the risk associated with new technologies, you may be limiting the development of new products and constraining your ability to grow.

Balancing risk and opportunity

The demands on family businesses have changed dramatically over recent years. The need to be able to react quickly to market developments puts additional pressure on your business’s flexibility and adaptability. Increasingly complex client requirements, a growing variety of products, ever-shorter product life cycles, rapid internationalization, complicated technical solutions and external factors in the business environment all influence a company’s ability to manage its risks.

Forward-looking risk management, combined with an effective control system, can help you manage a wide range of risks:

S t r a t egi c risks may come from internal causes, such as conflicts of interest between family and management, lack of talent with appropriate skill sets and inefficiencies in business planning and sustainability programs; or from external events, such as unpredictable political environments, supply chains and customer purchasing patterns. Unstable relationships with business partners can cause your business to suffer. Inconsistent resourcing and lack of standardized processes can bring problems for widespread organizations and those with shared services infrastructure.

Ope r ationa l risks can be encountered through management of human capital, lack of cost control, inadequate physical infrastructure and unexpected supply chain interruptions. If you are operating internationally, there can be language problems, logistics problems, security breaches and failure to react to economic fluctuations. Illness, or even epidemic outbreaks, can threaten your workforce. Acquisition and investment risk can stem from financial issues, and also through inconsistent business practices and integration difficulties.

Financia l risks can arise from many aspects of your business; especially when you are globally active. Such risks include: varying governance models and practices; economic instability; currency and interest rate fluctuations; complex tax laws and regulations; major differences between local and international accounting standards; and failure to manage and control capital and operating costs.

C omplian c e risks can be caused by inaccuracies in information presented to regulatory agencies. Frequent changes in regulations and different local laws make it difficult to keep up with the latest rules. Fraud, corporate deceit and employee theft in family businesses tend to be minimal, but these are still risk factors that cannot be overlooked. Unless you act sustainably across your enterprise, you are also at risk from the implications arising from producing socially irresponsible goods and services.

Having a proactive risk attitude and appetite

To counter the proliferation of risk, companies are being forced to re-evaluate their business processes. In some family businesses, systems and processes may have evolved over the years and require reassessment. Your brand values, your ability to function as a fast-moving business, your customer loyalty and your financial stability all rely on you taking a proactive risk attitude and encouraging the same risk appetite throughout your workforce.

There are clear ways to minimize the risk of error and malpractice. These include internal control systems with restricted access rights, master data management and a clear division of roles in operational processes. To manage risk effectively, you need to have an agreed terminology and consistent assessment levels across the company. This facilitates the fast identification and escalation of serious threat. You should broaden the scope of your risk assessment to include third-party risk, supplier risk, credit risk and counterparty risk. You are advised to build flexibility into long-term contracts and obligations and undertake scenario-based risk planning (for example, reverse stress testing).

Risk management is becoming increasingly important for companies and more influential in management decisions.

Companies should aim to establish an enterprise-wide view of risk across their entire global operations, develop contingency plans for key risk areas and establish an internal audit function and control culture. Your board needs to understand your risk environment, integrate risk assessment as a core part of strategic planning and review its scope regularly.

Good company management and transparency are particularly essential for family businesses. To balance risk and reward, you need to manage value at risk to a level aligned with your risk capacity and corporate strategies.

Our recommended steps for revitalizing your risk management capabilities include:

Ensuring that processes for crisis management are well planned and clearly documented

Broadening risk assessments to include third-party risk

Involving a broader group of management in scenario planning and employing enterprise risk assessment to avoid assumptions

Giving a board member direct responsibility for managing risks

Protecting your assets

To be successful in today’s business environment, it is vital to respond quickly to events and opportunities. So the continuous availability of critical IT resources is one of your most important success factors. However, our research shows that only 30% of companies have an IT risk management program in place that is capable of addressing the risks related to the use of new technologies.

Web-based transactions, cloud computing, social networking and mobile communications bring great opportunities, but they also make your company vulnerable to cyber attacks, data loss, application vulnerabilities, theft of intellectual property and risks due to reliance on external service providers and offshoring. EY’s Advanced Security Centers can help you to identify current risks and help you take steps to reduce them.

Another big risk factor is the solvency of your customers and your supply chain. When the banks tighten credit, you could find that your business is affected indirectly. While credit insurance may be available, it increases costs. Staying in close contact with customers and suppliers to assess their solvency, and halting deliveries when they reach a set threshold of open invoices, may be viable alternatives.

How EY can help you to identify and manage risk

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We have a tried and tested way of helping you manage risks. Together, we can work to:

1. Determine your requirements

2. Assess your current business strategy and identify problems to fix and opportunities for improvement

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures.

If your company has international interests, our offices in over 140 countries can provide you with the local support you need. To help you maintain control of your subsidiaries, we have risk professionals active wherever you do business. They speak appropriate languages and understand regional business processes.

To help protect your family business from risk, we use a suite of strategic, operational and outsourcing measures. We can help you to manage risk in the following areas:

Strategic, operational, financial and fiscal risk

Legal requirements, operational security

IT-related risk

Audit and expenditure risk

Review of contractual agreements

Corporate governance

EY’s tailored services

We welcome the opportunity to help you identify and reduce the risks your business faces, so that you can succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page .

ESOPs More Preferred By Indian Cos Than MNCs: EY Survey

Indian companies, in comparison to MNCs, prefer the conventional Employee Stock Option Plans (ESOPs), suggests EY India’s report, titled ‘ Stock Based Incentive Survey 2017 .’ An overwhelming 88% of Indian companies prefer ESOPs, which could be primarily because it leads to retention of employees and is easier to understand when compared to other stock-based incentive plans. While only 49% of the multinational companies (MNCs) respondents prefer ESOPs. The EY Survey also revealed that Employee Stock Purchase Plan (ESPP) is primarily used by MNCs.

Mapping the industry preferences, the report highlights that technology, telecom and media companies are more likely to roll out stock-based incentive plans (37%) followed by manufacturing and consumer goods (20%), healthcare and life sciences (14%), and financial services (11%).

In was interesting to notice that 87% of companies offer stock based incentive plans to only selective employees. Further, the survey re-emphasised that stock-based incentive plans aim to serve the dual purpose of promoting corporate performance and creating value for the employees. 50% of the respondents stated that both employer and employee-related factors are the key reasons for implementing stock-based incentive plans, which includes retention (16%), talent attraction, motivation, reward performance (9% each) and wealth creation for employees (7%).

Sonu Iyer, Partner & National Leader – Human Capital Services, EY says, “Though technology, media and telecom companies continue to lead the market when it comes to stock-based incentive plans, but a common theme of ‘hiring and retention of critical talent’ has ensured that successful and growing organizations across all sectors consider a compensation strategy married to stock-based incentive plans.”

The report indicates that out of the Indian companies surveyed, 47% have committed up to 3% of their paid up share capital toward stock-based incentive plans, while the majority of MNCs (33%) have committed more than 5% to 10% of the share capital for such plans. Thus, MNCs commit a higher capital towards stock-based incentive plans than Indian companies.

Sonu Iyer suggests that, “Design of the plan is truly critical for the success of a stock-based incentive plan. Adequate time must be invested in pre-plan brainstorming to align the interest of the employees and the company, taking into consideration industry and market trends, employee demographics, current and future business projections within the overall employee reward and retention framework.”

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Uncertainty, volatility weigh on global IPO market: EY

The number of new companies floating on the world’s stock markets hit a seven-year low in the first three months of 2017, as a raft of economic and political concerns weighed on the market, new data shows.

Only 167 initial public offerings (IPOs) were completed during the first three months of 2017, raising $12.1 billion, according to EY’s latest IPO trends report. When compared to the same period in 2017, total capital fell by 70 percent, while volume slipped 39 percent.

“The global IPO activity (has) slowed significantly,” Martin Steinbach, executive director at EY, told CNBC Tuesday, adding that this was evident “across all regions” en todo el mundo.

As of late, the world has been experiencing a “cocktail of volatility factors” said Steinbach, such as low oil prices and fears of a global economic slowdown, however he remained optimistic that activity would pick up as volatility starts to show signs of “trending down.”

As a result, companies are adopting a “wait-and-see” approach as to whether a stock market flotation is the best option. The report suggests issuers are currently looking at alternative prospects, such as mergers and takeovers, that are less susceptible to volatile market conditions.

Tech firms will postpone IPOs: Nasdaq

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I wanted a Budget for growth…

As I noted in my pre-Budget blog, it is hard to see how the appropriate UK policy response to a slowing in external demand and increased risk is to reduce domestic spending. Seven years on from the financial crisis, with little sign of success from deploying the “long-term economic plan” it seemed reasonable to suggest that the Budget was the time to consider an alternative course of action for the UK economy.

…but we got a Budget for low growth…

What we got was a Budget for a world of lower growth than we previously expected. As the EY ITEM Club concluded:

“The Budget was framed by the OBR’s more pessimistic view of future productivity growth. This means that the level of GDP is 1.5ppt lower by the end of 2020 than had been forecast in November. This downward revision to the productivity assumption is a judgement call and, it must be said, a pretty bold one given how big the stakes are. We have always been of the view that the OBR errs on the side of pessimism when it comes to the supply-side and this revision takes them further in this direction.”

It seems somewhat contradictory to claim on one hand to be following a “long-term economic plan” and then, on the other, to deliver a Budget with a huge range of initiatives. The “Tinkerman” Chancellor intervened in education, introduced a sugar tax and delivered a significant rebalancing of business taxation, favouring small businesses at the expense of larger businesses.

In addition, another £3.5bn is taken off departmental spending in 2019-20 and public service pension contributions are set to increase due to a cut in the discount rate used to calculate payments. In addition, the Chancellor has brought forward capital spending from 2019-20, flattering borrowing in his target year for a budget surplus

…and little to encourage greater corporate risk-taking.

Neither the revised growth forecasts nor the policy proposals offer much for businesses looking for signs of growth. The OBR downgraded its growth forecasts for every year of the forecast, most significantly from 2.4% to 2% for 2017. Yes there were the now traditional promises on devolution and infrastructure, changes to the tax system, a further cut in corporation tax and increases in tax free allowances for income and savings.

But delivery remains the challenge. Based on the OBR’s forecast, there’s little sign that any of these initiatives will have a material impact on either GDP or productivity. After more than six years in Number 11, it does appear that the Chancellor may have been able to shore up the economy but appears to be struggling to generate an increase in the rate of GDP growth.

When we view the lower growth forecasts against the backdrop of the Chancellor’s warnings of both a cocktail of global risks and a potential negative impact of Brexit, there was little to encourage businesses to invest either more or faster. With external demand slowing, businesses could be forgiven for looking for some additional activity to stimulate growth.

Back to the drawing board.

The UK economic outlook is challenging and uncertain. Growth is going to be lower than the historic trend rate and risks are weighted to the downside. Business cannot rely on the macro-economy driving growth, in a world where even inflation remains subdued. The focus has to be on:

Identifying the segments and sectors which offer the prospect of faster relative growth and allocating resources to these, devolution for example may create new geographic opportunities;

Continuing to manage cost carefully and considering how technology may be leveraged to drive greater efficiency;

Looking to M&A as a route to drive synergy, consolidate competitors and acquire new skills and capabilities to disrupt markets;

Considering international markets for potentially faster rates of growth than the UK market.

Is the “long-term economic plan” working?

The Chancellor of the Exchequer was extremely prescient in his speech in early January warning of the economic risks faced by the UK:

“Last year was the worst for global growth since the crash and this year opens with a dangerous cocktail of new threats.”

In the General Election campaign, the Chancellor continually referred to the “long-term economic plan” To take the UK economy from post-crisis recovery mode to one of growth and prosperity. The U. K. Economy has recovered from its post-crisis lows but GDP has performed much better than GDP per head as productivity growth has lagged our peers

The independent forecasts of the Office of Budget Responsibility(OBR) at the time of the Autumn Statement suggest the UK economy will continue to be relatively stable economically but that there is little prospect of any significant acceleration in growth. as his speech reconfirmed, the Chancellor has consistently claimed that the difficult global environment is a major contributor to the UK’s current disappointing performance.

It is true that there are significant challenges in the global economy, the IMF and OECD have both recently reduced their economic forecasts for the world and the OECD member countries respectively. However it is primarily the emerging markets which are finding the going difficult but the UK is less exposed to these markets. At the same time, the UK economy is benefiting from lower energy and import prices which are boosting consumer incomes and hence spending. It seems reasonable to suggest that e upcoming Budget offers the opportunity to review the long-term economic plan and consider possible Alternative courses of action.

Option A: Carry on and do more of the same.

The chancellor in is January speech made his view on the implications of the disappointing economic news very clear:

“For Britain, the only antidote to that is confronting complacency and sticking to the course we’ve charted.”

And at the recent G20 meeting, he went further suggesting more action may be required:

& # 8221; “storm clouds” over the global economy were holding Britain back and “our own economy is not as big as we had hoped” “.

“We may need to undertake further reductions in spending because this country can only afford what it can afford and we will address that in the Budget,”.

So in th chancellor’s mind the plan is the correct one and it is external factors that are responsible for current performance being less than hoped. therefore the appropriate way forward is increase the activity in the plan, especially the reduction of public spending.

Option B: A plan for growth

As many commentators including the EY Item Club have said, it is hard to see how the appropriate UK policy response to a slowing in external demand and increased risk is to reduce domestic spending. Seven years on from the financial crisis, with little sign of success in the “long-term economic plan” it seems reasonable to suggest that now is the time to consider an alternative course of action for the UK economy.

The desire to reform public finances and to move to a surplus has been at the heart of recent Budgets and the Autumn Statement. Underlying this drive is a belief that the market will deliver better economic outcomes than public sector intervention. The evidence in terms of economic performance suggests that the case has yet to be proven. The clues to an alternative course of action may lie in one of the government’s own policy initiatives.

The Government has set great store by its plans to rebalance the economy geographically by granting more power to cities and regions across the UK. These plans envisage public and private sector working together to develop local solutions in a way that seems absent at a national level. This process includes the ability to raise finance and to invest this to support the delivery of the local plans. These region and city plans highlight the areas which are seen as important in creating the platform for economic growth. In the 38 bids for funding submitted on September 4 th last year for the latest round of funding, skills, transport and housing were three of the largest categories of policy requests. All of these are areas which will typically require public investment and funding alongside private sector involvement and an integrated plan designed to align. for example, skills with investment so as to ensure the benefits can be realised.

Time for Government to take the lead, set direction and pick some winners.

The message is clear: if we are to move the economy to a stronger footing then change is required. There is a need to articulate a vision of what the UK economy is aiming to become. This cannot be left to markets which are struggling to understand the new economic environment.

More direction and integration is required. For example, current policy is seeking to boost spending on transport infrastructure and housing. However there are signs that UK has a skills shortage in the construction sector. It is unlikely therefore that the volume of construction required to meet these plans can be delivered. This is just one example of a lack of integration.

A new plan is required modeled on best corporate planning practices, which is based around:

a stronger role for government both in setting an economic and industrial strategy by working alongside the private sector; y

in developing a more active fiscal policy based on robust analysis of the resource allocation choices available, objectively assessing their potential contribution to delivering the plan.

The plan should set a clear direction make explicit choices on areas to prioritise and facilitate the measurement of success, rather than the looser collection of initiatives that are currently in place.

A new labour market means a new consumer market…

The 2017 EY ITEM Club report on Consumer Spending forecasts a slowing in the rate of growth in consumer spending as the benefits of low energy and food prices run out, inflation starts to rise, interest rises finally start to move upwards and recent fiscal changes begin to impact disposable income negatively. However, the challenges for consumer oriented businesses go beyond coping with a slowdown. The changes at a dis-aggregate level in the consumer market will in many cases be more significant for business prospects than the overall slowdown in growth.

As my blog on the changing labour market identified, the most important potential impacts that businesses should evaluate are:

Differences in the growth of incomes by income segment with middle earners likely to be squeezed while low earners do relatively better;

Continuing differences in income growth by age group, older people are expected to fare relatively well while younger workers are likely to find their growth in earnings slower, the impact on over 25s of the introduction of the National Living Wage( NLW) merits careful attention;

How relatively low wage growth will impact consumer behaviour, should we expect increasing price sensitivity and a continuation of the focus on value?

The impact of flexible labour market conditions on consumer psychology, will lower job security impact expenditure volumes and types?

How expected rises in interest rates will play out across consumer segments, given different distributions of assets and liabilities, and across products – how will car and other durable sales react to less attractive financing conditions?

The approach to granting credit in an economy with more self-employment, less job security and the increasing importance of older workers.

…and hence very different growth prospects for goods and services.

The primary consequence of the changing environment is significantly different prospects for market growth for individual categories of goods and services. The recovery in discretionary spending observed last year, supported by strong growth in real incomes, should continue in 2017 and beyond. For example, spending on transport in 2017 is predicted to exceed the already strong rate of growth seen in 2017. New car registrations reached a record high of 2.63m in 2017, reflecting cheap financing and the continued release of pent-up demand that had accumulated post-2008. Indeed, spending on cars rose by almost 10% in volume terms. With real incomes set for another healthy rise in 2017 and financing likely to get even cheaper, car sales are forecast to dip only slightly from 2017’s record high. However, as pent-up demand is exhausted and interest rates start to rise, the pace of growth in car sales is likely to tail off from 2017 onwards. But transport’s share of real spending will also be boosted by petrol prices remaining longer for longer.

Similarly, leisure (encompassing recreation and culture and restaurants and hotels ) should continue to enjoy at or above-average growth in spending as incomes continue to rise and people have more money for spending on non-essentials. Meanwhile, a humming housing market characterised by robust price growth and rising transactions will support household goods purchases like furniture.

Health-related products such as medicines, prescriptions and glasses should benefit from an ageing population, with the same development supporting that element of housing spending devoted to home maintenance (DIY and the services of plumbers, electricians etc.). Health and home maintenance are the only categories where elderly households spend more per person than UK households as a whole.

Granted, the same breakdown of spending by age suggests that clothing and footwear sales are likely to lose out from an older population, particularly sales of men’s fashion. But as an important element of discretionary spending, this category should still post strong volume gains over the next year or two.

In nominal, or cash, terms, a continued imbalance between the supply of, and demand for, homes is likely to push up rents, increasing growth in cash spending on housing . But cuts in energy bills will have an opposing effect, with all of the “big six” energy firms having already announced cuts in gas bills to take effect early this year.

In some respects, the shape of the nominal forecast differs from that for volumes. Spending on recreation and culture is predicted to see slower growth in cash terms, reflecting the tendency for the price of new technology to decline as production ramps up. And the share of spending devoted to food is likely to continue falling. This reflects the lagged effects of the prolonged decline in agricultural commodity prices, continued pressure on traditional supermarkets from discount retailers and the tendency for the share of spending on necessities to decline as incomes rise.

Time for detailed analysis and planning

Consumer growth is slowing, the labour market is changing and preferences continue to evolve. The key to success in this environment is detailed analysis at the segment and product level. Averages will provide little insight, companies need to maximise the insight form their available data to support the creation of detailed and effective execution plans.

A transformed labour market…

The scale of change in the UK labour market has confounded economists in recent years. Between 2010 and 2017, the UK created over 1.4m jobs, and today both the number of jobs and the participation rate in the labour market are at record highs. However, it is not just the volume of employment that has changed in the last few years. The transformation of the labour market has been wide-ranging and of such a scale to change the consumer market. Consumer oriented companies need to be aware of the impact of the UK’s new labour market on their customers.

…driven by labour supply…

The growth in jobs has been based to a large extent on an increase in labour supply. The scale of immigration into the UK captures the headlines and, as a result, the EU requirement for free movement of labour has become a key element of the negotiations in advance of a referendum on the UK’s membership of the EU. But migration was not the main driver of labour supply growth from 2010 to 2017. The increase in the number of people working to an older age than previously was the most significant driver of growth in the number of people in the workforce. People aged over 65 in work increased from 676,000 in 2008 to 1.2m in late-2017, an unprecedented increase reflecting changes to pensions, the impact of anti-age discrimination legislation and improved health.

…rather than an increase in pay…

However, this growth in employment has not translated into an equivalent growth in real wages. Between 2009 and 2017, growth in weekly earnings averaged just 1.4%, significantly below pre-crisis rates of growth. There was an increase in the annual rate of increase to 3.3% in May 2017, but this fell back to 2% by the end of 2017. In effect, unemployment is now back to the average observed between 2001 and 2007, but wage growth is only running at half the 4% recorded over that period.

The increase in labour supply cited above is one reason for lower than expected growth in wages, given the UK’s strong growth in employment, but a number of other theories have also been advanced. Éstas incluyen:

The weakening of the trades unions with an associated reduction in employee bargaining power;

The recognition by workers of the severity of the financial crisis, leading them to value employment over growth in living standards;

The flexible nature of the UK labour market which has led to higher number of self-employed and part-time workers with people willing to take whatever employment is on offer;

Increased costs on employers such as NI and pensions, limiting the resources available for pay rises; y

It is also possible, looking at the high average margins earned in recent years, that employers have chosen to take advantage of these labour market conditions and prioritise profitability ahead of pay rises.

In addition to the effects described above, the EY ITEM Club also suggest, drawing on Bank of England research, that changes in the composition of the workforce, including a shift to lower-skilled and lower paid jobs, may be depressing wage growth currently by 1% per annum.

…with little sign of any change.

An emerging concern is that low inflation is both reducing inflationary expectations among employers and also reducing their ability to put up their market selling prices. As a result, pay rises are being reduced further limiting income growth.

While EY ITEM Club expect real wage growth to begin to increase in 2017 and hold steady thereafter, the message for businesses is clear: the growth in real earnings is not going to be sufficient to offset other squeezes on household incomes and hence there is a need to plan for a world of lower consumer spending growth.

There will be changes in the distribution of income.

Overall income growth is expected to slow after 2017 but this effect will not apply equally to all segments in the consumer market. Understanding the variations in labour market performance by segment will be critical for consumer businesses.

The National Living Wage (NLA) will boost incomes of the lowest fifth of wage earners more than average. However at the household level, the benefits will be more equally shared as many low income households will have a lower earner eligible to benefit from the NLW.

Older people will continue to gain from their greater participation in the labour market discussed above and the “Triple Lock” on pensions.

Households with assets are likely to benefit from higher returns as interest rates rise but indebted households will find their disposable income squeezed.

Forecast increases in inflation, especially for energy prices, are likely to hit lower income households harder as more of their spending accounted for by energy and food. The introduction of Universal Credit will further squeeze these groups.

A complex consumer landscape

The new labour market is changing the consumer market. Key themes which consumer businesses should consider are:

Relatively low wage growth means consumers will continue to be highly price sensitive and search for value.

With high employment and a relatively high chance of finding work after a job loss, we can expect consumers to keep spending a high proportion of their disposable incomes. So savings will stay relatively low, but discretionary spending is more likely to go on purchases with an immediate impact rather than longer - term durable purchases.

Older people will account for an increasing part of the consumer market, this will boost the spending in areas such as health compared to clothing.

By contrast, career progression for younger workers is likely to be slower meaning the consumer purchasing life-cycle may well change and people will move to higher consumption levels later in life, if at all.

Lower income groups should see their disposable income rise faster than will be the case for people in the middle of the income distribution at least in the next one to two years.

Increased self-employment, part-time work and temporary roles mean credit scoring is likely to become increasing complex as new risk models will be required.

Volumes are likely to grow faster than value this market. The key to success will be to develop the appropriate analysis at a segment and product level, this is a market in which the average provides little insight.

Make hay while the sun shines…

Consumer spending grew at the fastest rate since the financial crisis in 2017, significantly outperforming the projections set out in the 2017 EY ITEM Club Consumer Spending report. Low inflation and falling oil and commodity prices were the key drivers of faster than expected spending growth.

The outlook for 2017 is similarly strong with low inflation, delays to any rise in interest rates, strong consumer confidence and the introduction of the National Living Wage (NLW) all boosting the prospects for consumers. The EY ITEM Club expects consumer spending growth of 2.9% in 2017. in line with the out-turn for 2017.

…expect a tougher environment…

But that is where the good news ends. After 2017, a number of factors such as rises in interest rates, the return of inflation, the introduction of Universal Credit, increased costs of employment such as the Apprenticeship Levy and strong labour supply growth could all impact household incomes adversely.

The two changes most likely to improve consumer prospects after 2017 are the introduction of the NLW and the continuing guarantees of pensioner incomes.

The NLW will primarily boost incomes at the lower end of the income distribution but across households its impact will be more evenly spread as many low paid workers are the second earners in relatively affluent households. A lower marginal propensity to consume in higher income households and tax and benefit impacts that limit the forecast benefit of the NLW to income incomes to 60% of the NLW amount mean the impact will be less than absolute numbers would imply.

Pensioners will continue to benefit from the “triple lock” and this together will higher numbers of older people in work, close to double the 2008 level currently, both incomes and spending of older groups will continue to grow faster than average.

With the expectation that interest rates will remain low for some time, house price appreciation is further likely to boost consumer wealth and hence spending, while higher debt payments will not have a significant impact on disposable incomes for some time. For example, Bank of England surveys suggest only 31% of mortgage holders would need to reduce their spending in response to a 2% rise in interest rates, down from 44% in 2017.

These changes will be more than offset by a number of factors that will have a negative drag on the growth of consumer incomes:

The introduction of Universal Credit from 2017 will mean that reductions in incomes will amount to around 90% of the impact of the abandoned tax credits by 2020;

Additional costs on employers such as the Apprenticeship Levy and pensions are most likely to be recovered by employers through lower wages; y

Higher inflation and interest rates will squeeze consumer incomes.

The most significant influence on future consumer prosperity will be the rate of wage rises. The UK has witnessed unprecedented rates of growth in employment and today unemployment is at very low levels, around 5.1% as at November 2017, and the participation rate is at an all-time high of 74%. But this has not been matched by a corresponding rise in wages, quite the opposite in fact. After showing signs of accelerating, with the average growth in average weekly earnings reaching 3.3% in May 2017, recent data points to a cooling off with the rate falling to 2% by the end of 2017.

Many theories have been advanced for the fall in the rate of wage inflation. Weak trades unions, shifts in the sector mix of employment, and a strong growth in labour supply, as a result of record numbers of older workers and continuing high levels of immigration, have all played a part. There is now anecdotal evidence that low price rises are impacting employers’ decisions on the level of pay rises, further reducing pay settlements.

EY ITEM Club expects that consumer spending growth will slow to 2.1% in 2017, down from 2.9% in 2017 and then average just 1.9% annually between 2017 and 2019. While lower income groups and older people are expected to increase their spending faster than average, the overall picture is of relatively slow growth.

…and plan accordingly.

Consumer facing businesses are likely to have the luxury of a year to 18 months to position their operations for a slower growth in consumer spending. This year is the ideal time to:

Review future growth forecasts at the segment and product level and ensure these are consistent with expected economic conditions;

Ensure the opportunities in relatively faster growth segments, such as older customers and lower income groups, are fully reflected;

Consider how realistic pricing plans are in the light of a low inflation, low income growth environment;

Analyse capital expenditure proposals for the scope to drive additional efficiency gains, possibly via labour saving investment to limit exposure to the NLW.

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BAC April 29th Options Begin Trading Thursday, March 10, 10:40 AM

BAC April 22nd Options Begin Trading Thursday, March 3, 10:36 AM

Interesting June Stock Options for BAC Monday, February 29, 12:00 PM

Interesting BAC Put And Call Options For April 8th Thursday, February 25, 11:46 AM

One Put, One Call Option To Know About for Bank of America Monday, February 22, 11:57 AM

Interesting BAC Put And Call Options For June 17th Monday, February 22, 11:21 AM

BAC April 1st Options Begin Trading Thursday, February 11, 10:54 AM

Interesting BAC Put And Call Options For March 24th Thursday, February 4, 10:55 AM

Notable Wednesday Option Activity: BAC, XOM, CDNS Wednesday, February 3, 3:33 PM

BAC September 16th Options Begin Trading Wednesday, February 3, 10:33 AM

Uncertainty, volatility weighs on global IPO market: EY

Stock Market Blue Concept Illustration. Stock Exchange Building in Lower Manhattan, New York City and Stock Graphs and Ticker Composition. Business Financial Backdrop

“The global IPO activity (has) slowed significantly,” Martin Steinbach, executive director at EY, told CNBC Tuesday, adding that this was evident “across all regions” en todo el mundo.

Based on the activity seen in the first three months of 2017, EY expects political and economic uncertainty to continue to weigh on investors, with the refugee crisis and U. K. referendum impacting Europe. while the upcoming presidential election is “clouding” the U. S.’ economic and foreign policy outlook.

However, as Steinbach said, there is some upside. Activity in markets worldwide will improve as the year continues, with monetary policy decisions from the U. S. Federal Reserve, European Central Bank, Bank of Japan, and People’s Bank of China, hoping to boost activity in later months.

The Asia-Pacific region may be an area for concern economically, however Steinbach said Asia remained on “the leaderboard in IPOs” as it still is a growing market. In fact while IPO volumes slipped 31 percent in Asia-Pacific’s first quarter — compared to 2017’s Q1 — it delivered 61 percent of global IPO deals within 2017’s winter months.

On top of that Japan is expected to deliver “another bumper year”, with investor sentiment in the region remaining “broadly solid” as it delivered its best first quarter results since 2008, the report added.

“While there are many potential risks and investors face an uncertain outlook, the IPO pipeline remains healthy in a number of regions,” Jackie Kelley, EY Americas IPO Leader, said in a statement accompanying the report.

“Signs of stabilization in the economic and political backdrop are likely to prompt an increase in activity in the coming quarters,” Kelley added saying EY expected IPO levels to “trend closer to historic norms” pronto.

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SEC reopens "flash order" debate

NEW YORK The top U. S. securities regulator wants more feedback on its nearly year-old proposal to ban "flash orders," and has asked additional questions about the wisdom of the ban in the options market.

The Securities and Exchange Commission in September proposed to ban the orders, which some exchanges "flashed" for a fraction of a second to specific market participants before displaying them to the wider marketplace, giving exchanges a last chance to fill the orders in-house.

The ban plan was intended to level the playing field, and meant to apply for both the stock and option markets.

The SEC has now asked for public comment on the overall quality of flash executions in the options market, and on what effect a ban would have on its more recent proposal to cap option trading fees.

The SEC "is particularly interested in the extent to which flash orders, if they fail to receive an execution in the flash process, 'miss the market' by either receiving an inferior price through an execution against a displayed quotation or no execution at all," it said in a July 2 notice on its web site.

Public comments will be accepted until August 9. The last deadline was in November.

The SEC is reviewing the high-speed marketplace that has become increasingly fragmented and complicated over the last decade. The regulator raised several concerns even before the severe May 6 "flash crash" rattled investors and exposed flaws such as a lack of cross-market trading halts.

(There is no connection between flash orders, which are now largely phased out of the stock marketplace, and the flash crash moniker that has come to describe the May plunge.)

While flash orders were roundly criticized in the stock market, the ban proposal faced resistance in the options market from the beginning.

Heavyweight exchanges, the Chicago Board Options Exchange and the International Securities Exchange, have argued to preserve the orders, known as step-ups, which give them a small but important edge.

Defenders say flash orders give customers better prices and can save them from paying fees at rival venues that don't offer the service. Critics say they create a two-tied market that advantages sophisticated investors.

The SEC in April proposed capping option fees, a move meant to shine a light on the market's tiered pricing structure. The CBOE has said it would challenge this plan, too.

In its recent request for comment, the SEC said that some commentators expressed concerns that a flash order ban could raise access fees unless a fee cap was also instituted.

(Reporting by Jonathan Spicer; Editing by Tim Dobbyn)

Uncertainty, volatility weighs on global IPO market: EY

“The global IPO activity (has) slowed significantly,” Martin Steinbach, executive director at EY, told CNBC Tuesday, adding that this was evident “across all regions” en todo el mundo.

Tech firms will postpone IPOs: Nasdaq

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After activist hedge funds nominated potential directors for United Continental‘s board earlier this week, the founder of one of the firms says that move is intended

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The stock market rally off the early-February lows has created an unusual condition that could be a concern over the next month or so. More than

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European travel disruption looked set to continue in the wake of deadly bomb attacks in Belgium as the country’s main airport extended a passenger shutdown until

The effectiveness of Belgium’s counter-terrorism intelligence was thrown further into doubt Thursday on news that Turkey had not only arrested and deported one of the attackers

One terrorist blew up himself up at an airport. His brother did the same thing at a busy subway station. And perhaps most puzzling, a man

China’s growth rate may be slowing, but it is still a positive driver for the global economy, the chairman of Swedish technology giant Ericsson told CNBC.

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Deadly terror attacks in Brussels on Tuesday have sparked calls for expanded security in the crowded areas around airports in the U. S. protecting human lives at

Yahoo will likely end up selling its core business once its proxy fight with Starboard Value is finished, RBC Capital Market analyst Mark Mahaney said Thursday.

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Canada lags behind in FinTech adoption: EY study

January 26, 2017

The FinTech industry may be disrupting traditional financial systems around the world, but new research says it’s a little slower to take off in Canada.

As part of its FinTech Adoption Index. EY surveyed more than 10,000 digitally active people in Canada, Australia, Hong Kong, Singapore, the United Kingdom and the United States to find out their habits.

EY found that 15.5 percent of digitally active consumers have used at least two FinTech products within the last six months. In Canada, however, adoption rates are slower, with just 8.2 percent of digitally active consumers using FinTech products. Of all markets surveyed, Hong Kong had the highest rate of use, at 29.1 percent.

The survey noted that FinTech adopters tend to be younger, higher income customers. Overall adoption is concentrated in high-development urban areas like New York, Hong Kong and London. For example, 33.1 percent of New Yorkers have adopted FinTech. In London, more than one-quarter (25.1 percent) have.

What sort of services are taking off? Money transfer and payment services, including foreign exchanges and oversees remittances, are the most popular with 17.6 percent of customers having used these services at least once. Savings and investment services including online stockbroking or rewards crowdfunding, are also popular, with 16.7 percent of users exploring these options. Less popular are insurance services (7.7 percent) and borrowing services (5.6 percent).

For those who have gravitated toward FinTech, they cite seven main reasons namely:

Easy to set up an account – 43.4%

More attractive rates/fees – 15.4%

Access to different products and services – 12.4%

Better online experience and functionality – 11.2%

Better quality of service – 10.3%

More innovative products than available from traditional bank – 5.5%

Greater level of trust than the traditional institutions – 1.8%

What’s stopping others? EY found that there are six top reasons people don’t use FinTech:

Was not aware they existed – 53.2%

Did not have a need to use them – 32.3%

Prefer to use a traditional financial services provider – 27.7%

Don’t understand how they work – 21.3%

Do not trust them – 11.2%

Have used FinTech in the past but don’t want to use it again – 0.8%

What about you? Are you an early adopter of FinTech or are you holding off?

EY, LANL make new cybersecurity tools available to private sector

Strategic alliance will allow EY to offer Los Alamos’ unique behavioral analysis cybersecurity tools to respond and quickly counter attacks

NEW YORK and LOS ALAMOS, NM, Aug. 25, 2017–Ernst & Young LLP and Los Alamos National Laboratory have formed a strategic alliance to deliver some of the most advanced behavioral cybersecurity tools available to the commercial market.

“Cybersecurity attacks are ever more frequent and more sophisticated, and they destroy the trust needed to conduct business,” said Duncan McBranch, Chief Technology Officer at Los Alamos National Laboratory. “Every organization must improve its ability to detect and stop attacks as they occur, and before secure data is compromised. This unique relationship with EY will improve our ability to develop and test adaptive cybersecurity technologies across both industry and government networks. Defensive cybersecurity is an area that requires strong public-private partnerships to shift the balance.”

The alliance comes at a watershed moment when increasingly sophisticated cyberattacks are inflicting significant economic, social and even political damage to US organizations. The tools developed by Los Alamos and delivered to the private sector exclusively by Ernst & Young LLP can help counter these threats by detecting them before they do deep and lasting damage.

“We are very excited to be working with Los Alamos as part of our overall mission to transition their heritage of national cybersecurity and innovation to the private sector, and arming our clients with the most advanced tools and resources to combat cyber-threats, said Bob Patton, EY Americas Advisory Vice Chair. This collaborative approach is reflective of our global strategy to help organizations manage cybersecurity better and doing our part to build a better working world.”

PathScan® to be Introduced to Private Sector through Alliance

The first product to be introduced through the alliance will be PathScan®. a network anomaly-detection tool that searches for deviations from normal patterns of communication that might be indicative of an intrusion. Up until now, PathScan has been exclusively used in the government sector, but it will now be made available to private companies for the first time.

By virtue of its introduction to the marketplace, PathScan immediately becomes one of the most advanced cybersecurity tools available based on its behavioral analysis approach to detecting threats. The tool is designed to detect threat actors once they have breached an organization’s perimeter, before they can inflict serious damage.

While many companies are investing heavily on prevention tactics, not enough are focused on detecting the inevitable breach. According to the most recent EY Global Information Security Survey. more than half (56%) of executives said their company would be unlikely to detect a sophisticated cyberattack.

“Organizations must accept that no defense will keep out a determined hacker. This shift in understanding – that a cyberattack is not a matter of if, but when – means companies must detect threats as soon as their perimeter has been breached and take appropriate action,” said, Siobhan MacDermott, Principal, Cybersecurity, Ernst & Young LLP. “The stakes have never been higher as breaches can impact everything from revenue and stock price to intellectual property and reputation. The seriousness of the cybersecurity threat facing corporate America requires the use of such security-sensitive tools developed by Los Alamos.”

PathScan’s transition to the commercial marketplace was aided by the Transition to Practice (TTP) program, an initiative of Department of Homeland Security Science and Technology Directorate. The TTP program helps to advance and raise the visibility of promising technologies developed in the national laboratories that are deemed to be ready for transition to the commercial marketplace.

Established in 1943, Los Alamos has been a pioneer and leader in applying scientific research excellence to solve national security challenges. Since the 1980s, a core component of that mission has been cybersecurity. This significant expertise has resulted in the development of a number of powerful cybersecurity tools, some of which will be made available to the general public through this alliance.

The alliance with Los Alamos follows the launch of the EY Managed Security Operations Center (SOC), which uses advanced analytics to predict and prevent future cyber threats world-wide. Announced earlier this past June, the global EY organization plans to invest more than US$20m in its Managed SOC and increase the number of EY cybersecurity professionals six-fold by 2020 as part of its mission to protect clients against cyberattacks.

For more information about EY’s strategic alliance with Los Alamos, visit www. ey. com/losalamos

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey. com.

This news release has been issued by Ernst & Young LLP, a member of the global EY organization that provides services to clients in the US.

About Los Alamos National Laboratory

Los Alamos National Laboratory, a multidisciplinary research institution engaged in strategic science on behalf of national security, is operated by Los Alamos National Security, LLC, a team composed of Bechtel National, the University of California, BWX Technologies, Inc. and URS for the Department of Energy's National Nuclear Security Administration.

Los Alamos enhances national security by ensuring the safety and reliability of the U. S. nuclear stockpile, developing technologies to reduce threats from weapons of mass destruction, and solving problems related to energy, environment, infrastructure, health, and global security concerns.

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My previous employer offers stock options to all employees with a vesting period of a year. Each employee is given 20 shares and a share is added for every 6 months of service. That was my first experience of stock trading. However, I have to sell them when I decided to leave the company.

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A hot one. Stock options are the right to purchase (or sell, but companies don’t pay in "put" options) a defined number of shares of stock in a corporation at a certain value (called the "strike" price) at a certain date. There is always a period prior to expiration of the option, and always an expiration date. These have become a fairly common mode of employee compensation, particularly for executives within a corporation.

So, for example, an option might be that the holder has the right to purchase 1,000 shares of Vishay Electronics at 20 dollars a share, as of today and continuing for the next two years, with the right to purchase expiring at that time. If Vishay is selling today for $ 24 per share, the present value of the option is $ 4,000 less fees and taxes. Pretty simple, and this is the calculation suggested in Everett v. Everett, 195 Mich App 50, 54 (1992). The court also holds that "the actual date on which to determine the market price for valuation purposes is within the discretion of the trial court." Id at 54.

There are three problems. First, what about options that have not yet "matured", that is, those options that may not yet be negotiated? As the Everett court points out these may be tough to value since (a) there may be conditions attached to these options that do not accrue (continued employment) and (b) the price of the stock may decline (or increase) by the time of maturing, making valuation problematic. Ordinarily one would think about assigning or transferring a certain number of the shares, but this is (often) not an option under the plan that created the asset. The Everett court suggests no answer to this and merely turfs the problem back to the trial court with the note that the non-matured options must be divided "in a manner that protects" the parties equitable shares. Id at 55.

My suggestion is that valuation of the unmatured options take place at the time of the sale or termination of the option date. The transfer would then be the total asset, less any costs of sale, less the tax on the gain times a percentage to be awarded to the non-holding spouse.

A second issue, also mentioned in Everett, is the problem of options with no present value (share price below strike price) but possible future value due to the period of the option. The Everett court dodges this one as hypothetical to the facts before it, but I would suggest the answer is no different than options that have not yet matured. If "negative" options later become "positive", the post tax/cost of the asset should be divided by a defined percentage.

Third, a matter not confronted by Everett, is the issue of unvested options, that is, options that will accrue at some time in the future if an employee fulfills certain conditions, usually continued employment. Barb Kelly, the senior referee in Washtenaw County, has written that these options are "likely to be considered marital property just as the unvested portion of a pension plan." I agree with this, with the caveat that some portion of the non-holder’s share (percentage) might be decreased due to the post-JOD conditions. Note that Everett is the only Michigan precedent to this date to discuss the division of stock options.

Stock options as an income item (for child support or alimony) is a trickier issue, since the holder may have some ability to exercise the options at a date that avoids any family obligation. It also seems conceivable that there could be "amortization" issues---that the option gains should be spread over a period of years. Barbara Kelly has written on this point, though the writing does not confront the amortization issue---

If the options are granted after the (JOD) or in a case where the parties are not married they are income to be addressed in the support determination. They are a benefit of employment, often granted in lieu of a larger salary…

The real issue is the determination of when they should be included…One obvious answer is that it will be included when the income from the option is realized…The problem with this approach is in many stock plans…the employee could effectively keep the option income out of the support consideration for a number of years, or until the support obligation has ended.

A second answer is to include the income on the date it can first be realized or the date the holder is first told they will pay support out of the value, whichever is later. This allows the holder to make reasonable choices about what to do with the stock…. Of course, if the options are exercised and the stock sold during a period support is being considered but prior to the date the Court determines, they will be included in income. The actual income realized should be used.

There are many factors to consider in any decision to exercise the options and sell or hold the stock. Most of these factors should not be considered if the Court is setting the value. Tax consequences should be considered. In certain qualified stock option plans the gain from the options is not included in the holder’s income until the stock is sold. If the options are exercised and the stock held for one year, the gains will be eligible for a capital gains tax rate, currently 20%. If the options are exercised (in less than one year, a significant tax differential will accrue). The Court should consider allowing the employee to hold the stock for the one year period and value it on the first date the gain on the stock would be eligible for capital gains tax treatment. If the holder sells the stock prior to that date, the actual net gain should be considered income…

Internal FOC Memorandum. I don’t have much issue with this, save for the potential, nagging matter of amortization.

In 2002 Ann Arbor attorney, Sherry Chin, wrote an impressive and comprehensive paper on stock options. The paper was presented to the ABA and contains a bibliography of sources. See www. sherrychinlaw. com for the article. Craig Ross is also willing to e-mail the article, at the kind permission of Ms. Chin.

OPED24 Accounting for Stock Options

Stock options are a tool that was increasingly utilized in the '80's and '90's to align management and executives' interests with those of the firm. Originating in start-ups, options spread to the Fortune 500 where it is estimated they now account for approximately 60% of executive compensation. Options have sometimes been controversial, such as times when executives have been granted options valued at hundreds of millions of dollars. Critics claim that overly generous stock options result in excessive compensation for executives, and may also give them an incentive to manipulate their company's finances to inflate stock prices. However, this OPED does not address this aspect of stock options, but rather their accounting treatment and how they are treated on companies' financial statements and tax returns. Although stock options are a form of compensation they don't count as an expense on a company's books. However when options are exercised the companies treat them as a cost and deduct the difference between the strike price and what they could have received by selling the stock on the open market. This has given many companies significant tax advantages e. g. in 2000 Microsoft saved over $2 billion and Cisco $1.4 billion in taxes by deducting stock option costs. Critics claim that the net effect of options is to exaggerate profits while reducing taxes. In the past efforts have been made to change the accounting treatment of stock options. In 1994 the Financial Accounting Standards Board proposed changing the rules so that stock options would have treated as expenses. A coalition of business interests lobbied the Senate and pressured the FASB, which retreated, finally only requiring companies to include information on stock options in the footnotes of their financial reports (FAS 123). Following the Enron debacle the subject of the treatment of stock options has again come to the fore. In the Senate a bill to require that companies subtract the cost of stock options if they avail themselves of the tax advantages has been introduced by Senators Carl Levin (D-MI) and John McCain (R-AZ). A similar measure has been introduced in the House. People and institutions that have come out in favor of companies deducting the cost of stock options on their balance sheets include Federal Reserve Board Chairman Alan Greenspan, formed FED Chairman Paul Volcker, former SEC head Arthur Levitt, mega-investor Warren Buffet, Standard & Poors, the Council of Institutional Investors, and many others. Arrayed against them are a number of business organizations, Silicon Valley companies, venture capitalists, and many other groups. This is a high stakes battle. The Federal Reserve has estimated that if stock options had been expensed the Fortune 500's profit margins from 1995 to 2000 would have dropped from 12% to 9.4%. A Bear Stearns study estimated that if options were an expense the earnings per share of the S&P 500 companies would have been 9% lower in 2000, while a Credit Suisse First Boston study estimated the drop at 13%. This downward effect would have been much greater at many technology companies, for example 30% at Lucent Technologies and 26% at Cisco Systems. The arguments for and against are:

Business says stock options are not cash payments to the employee, and therefore are not costs. Opponents say that stock options are just another noncash cost (like depreciation) to the firm which come out of their earnings (when the company sells the stock at a lower price rather than at the higher market price).

The Coalition to Preserve and Protect Stock Options says that changes would "discourage broad-based, rank-and-file access to stock options." However, if stock options do effectively align employees' interests with those of the firm it is difficult to understand why their accounting treatment should differentiate between those issued to executives and those issued to other employees of the firm.

CPPSO also says that changes "will raise taxes on companies issuing employee stock options." Proposed changes (e. g. Levin-McCain) do not end the tax deduction, but require that those companies which take the tax deduction also include the stock options as a cost of doing business. Thus the real effect of the changes would be to lower companies' profit numbers.

Opponents argue that accounting for stock options will adversely effect profit figures, which in turn would lower stock prices. In answer Greenspan has said "If investors are dissuaded by lower reported earnings as a result of expensing, it means that they were less informed than they should have been. Capital employed on the basis of misinformation is likely to be capital misused" Receiving stock options means that executives get the right to dilute the ownership interest of existing shareholders at some future point, in which case existing shareholders will thus get less of the upside potential of the stock than in the absence of the options. In a perfect market existing shareholders would have sufficient information to value when and how this might happen and they would then incorporate that information in their assessment of the value of a company's shares. However, expecting everyone wishing to buy shares to examine in detail every aspect of a company's financial situation in order to evaluate this would impose unacceptable transaction costs that would have detrimental effects on the capital markets and the economy. This is why accounting standards need to require that the maximum amount of information be provided, to reduce transaction costs, improve resource allocation, increase investors' confidence in the markets, and result in a smoothly functioning market.

Business argues that it is very difficult to value stock options accurately. It is true that this is difficult, but it is not impossible. Various models exist to value options e. g. Black-Schloes. Businesses estimate the value of options themselves, during internal planning and while granting options. Investors should have the same option. Business argues that these would only be estimates, and thus would be misleading to investors. However there are many other items on the financial statements that are estimates, such as depreciation estimates of the decline in market values of a company's assets. Opponents of change are in the curious position of arguing that shareholders are capable of combing through pages of financial statement footnotes and making an informed judgment, but would be confused by imperfect estimates provided by accounting rules.

On a slight tangent, another factor that might make a difference in how this issue is eventually resolved is the increasing convergence between International Accounting Standards (IAS) and the US Generally Accepted Accounting Principles (GAAP). The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) are increasingly trying to standardize accounting standards (though often their approaches are very different e. g. the IASB approach is "principles-based" while the FASB approach is "rules-based", etc.). The IASB says options should be expensed, and this might weigh in the US decision.

In conclusion this OPED believes that the accounting treatment of stock options should change - that when granted they should be valued and treated/reported as a cost of doing business. While this valuation would not be one hundred percent precise, it would be a move to increase transparency that would have positive effects on the market. The scare tactics of opponents (see some quotes below) should not derail attempts to bring about changes in this area.

"What's at stake is really the model of granting options that has fueled the growth of tech companies, Silicon Valley's economy and the economy of the country" - Kim Poelese, Marimba chairwoman. "This threatens the treasured American system of creating rewards for taking risks" - John Doerr, venture capital. "Levin-McCain would deprive investors of information about stock options and reduce the availability of broad based stock option plans" - Joe Lieberman (D-CT) "You don't want Congress writing accounting rules" - Liz Fender TIAA-CREF "Most Hill staffers have never been compensated through stock options, have no idea how they work and probably think they are an automatic boondoggle. As you talk them through the facts of stock options, you can see the lightbulbs turn on as to why the current system works better than Levin-McCain" - Christopher Jankin, Sum Microsystems lobbyist.

Enron and stock options:

From 1996 to 2000 Enron's earnings were $600 million higher than they would have been if stock options were an expense. The tax deductions from those stock options helped Enron pay no taxes during four of the five years in that period. "There are cases where you can use equity to impact your income statement. the most egregious, or the one that is used by every corporation in the world is executive stock options. essentially what you do is you issue stock options to reduce compensation expense and therefore increase your profitability." - Jeffrey Skilling, former-CEO of Enron, testifying before the Senate.

Note: 498 of the 500 firms in the S&P500 account for options by putting them in the footnotes and taking a tax deduction - the 2 exceptions are Boeing and Winn-Dixie.

Multi-Listed Stock Options

Multi-Listed Stock Options are stock that have options that are listed on more than one exchange. When stock options are listed on three or more exchanges, a competitive market is likely to exist. Traders should try to avoid options that are only listed on one exchange. The Market Maker on that exchange knows that the trader can’t go elsewhere to get filled and they will not budge on their price. Option exchanges determine whether there is enough demand to justify listing stock options for a particular equity on their exchange. There are fixed costs that are involved and they need volume to cover these costs. When trading multi-listed stock options . I suggest working the order from one option exchange to another. Often, the other side of your trade will fit nicely into a Market Maker’s position and one of the exchanges will fill you at a better price.

Stock Option Trading Education

Definition of Option Theta. An Option Theta measures the rate of decline in a stock option due to the passage of time. Theta. Lee mas

Option Ask Definition. An option ask is the price an option seller wants to receive for the option. If the option is. Lee mas

Front Month Option Expiration. The nearest term stock option is referred to as the front month. En un ciclo de vencimiento de cuatro semanas. Lee mas

Option Premium Pricing and Intrinsive Values. An option premium is the price of the stock option. It is comprised of intrinsic value and time. Lee mas

Option Exercise Price. An option exercise price is the price level where the option starts to take on intrinsic value. Eso. Lee mas

Options At the Money. When the stock price is the same as the strike price an option is considered at the money . Los. Lee mas

Option Pricing Models - Black Scholes. The Black-Scholes Option Pricing Model is a financial model thatl was developed in 1973 by Fisher. Lee mas

10 up Option Market Definition. Ten-up Option Market - Market Makers provide liquidity and they are members of the exchange. Ellos. Lee mas

Butterfly Option Spreads. In a Butterfly Spread strategy, all of the expiration months are the same. A trader buys a call. Lee mas

Four-way Options Spreads. A 4-Way Option Spread is the same as an iron condor spread. The option strategy sells an out of. Lee mas

Time Decay and Options. Stock options are a wasting asset. From the day you purchase them, their value goes down if the. Lee mas

When Options Trade at a Discount. An option that is trading below its intrinsic value is trading at a discount . For instance, a $50. Lee mas

Diagonal Option Spread. A Diagonal Spread is an option spread where the trader buys a longer-term option and sells a. Lee mas

Put Option & Equity Puts. A put option gives the buyer the right, but not the obligation, to sell the underlying stock or. Lee mas

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Stock Grants Vs. Opciones de alamcenaje

Stock grants and stock options are both incentive benefits.

Comstock Images/Comstock/Getty Images

by Contributing Writer

Whether you prefer a stock grant or a stock option depends on your appetite for betting. Both are passed onto employees as beyond-the-salary compensation and are meant to motivate positive performance. But a stock grant is considered a sure thing with guaranteed value. A stock option is based on the promise of company growth, meaning your stock could be worth a lot more down the road or worth nothing.

Stock Grants

Stock grants are gifts of company stock given to an employee. Their value will go up and down according to the market and will never be worthless, unless the company takes a header into bankruptcy. Sometimes caveats are placed on these gifts, for instance an employee may have to hold on to the stocks for a certain period of time before they can be sold. The employee can then sell the stock for the fair market value.

Opciones de alamcenaje

Stock options are an incentive tool used by young companies. Employees get the opportunity to purchase the stock for the price at the time it is granted, which is presumably at the low end for a young company. If the company does well and the stock price goes up, the employee can purchase the more valuable stock at the cheaper price. For example, if they had the option to buy at $3 and the price of the stock jumps to $6, that employee could exercise the option and see 100 percent gain in value. On the other hand, if the stock value sinks below $3 then the option doesn't represent any gain in value. It's basically a bad option.

Company Choices

Some companies still give out stock options, but more have moved to the stock grant side. According to a 2003 study by PricewaterhouseCooper’s human resources division, the number of companies offering stock grants increased 15 percent from 2002 to 2003. This era was the beginning of a trend as large companies saw the likes of Enron managers use stock options to their advantage by unnecessarily or illegally taking risks to drive up the company stock. In addition, options were great when a tech company was still growing but not so attractive to new employees who came on board after the company already made it.

Tax Differences

Stock grants and stock options have slightly different tax implications. With a stock option, you would pay income tax on what is called the “spread.” This is the difference in the stock price when it is first granted and when the employee exercises the stock option. For example, a company issues the stock grant at $5 and the employee buys the stock for $5 a share when it hits $10. The difference is $5 per share and is considered income by the IRS and is therefore taxed as income. Now the employee owns the shares. When the worker sells the shares on the open market, the gains are subject to capital gains taxes. Stock grants are seen as income. The IRS wants employees to pay income taxes on the grant when the stock is granted. However, if it's considered a restricted stock grant then the employee only pays when the stock vests, which means the employee has the right to sell the stock after a set amount of time. After selling the stock, any money made is subject to capital gains tax.

Referencias

Sprint Nextel Corp. is looking to offer some limited relief to employees holding functionally worthless stock options.

In proxy materials filed Monday with the Securities and Exchange Commission, the Overland Park-based company (NYSE: S) said it will ask shareholders at its annual meeting on May 11 to approve a value-for-value exchange of employee stock options.

Sprint, like many companies, has for years offered stock options as an incentive to retain and encourage good workers. An option is the opportunity to buy a share of stock at a predetermined price, usually the price on the day the option is awarded. The option gains value if the stock price at the time the employee “exercises” the option and buys the stock is higher than when it was granted.

But Sprint’s shares have gone in the opposite direction as the company has lost millions of customers amid the ultra-competitive wireless industry.

The company estimated that the exchange program would affect 33.2 million options that have an average value of $18.28 each. Sprint shares closed at $3.79 in Monday trading.

“At a time when we need our employees’ motivation to be at its peak, the stock options that have comprised a significant portion of their compensation have become demotivating,” the company wrote in the proxy.

Through the options exchange, employees would have the opportunity to swap their current options for a smaller number of new options tied to current stock prices. People with options priced between $6.08 and $13.17 would get a single new option for every two old options submitted; those with options valued at $13.18 or more would receive a single new option for every 4.5 old options.

The exchange would apply only to options granted at least a year before the exchange began, not about to expire and not priced less than the 52-week high, which is $5.94, according to Yahoo Finance. It also wouldn’t apply to Sprint’s top executives.

Sprint said the exchange, if approved, also would reduce the company’s “overhang,” or number of potential shares that could be triggered in the future and dilute the value of current shares.

Other than the options exchange, shareholders will be asked to elect 10 board members to one-year terms and ratify the appointment of KPMG LLP as Sprint’s auditor.

The shareholders also will be asked to vote on three items being proposed by other investors. They include requiring Sprint to file annual reports about the company’s political activities, allowing an advisory vote by shareholders about executive compensation and allowing shareholders to approve corporate decisions by written consent instead of having to wait for a regular shareholder meeting.

Sprint’s board advocated against the three items, saying they were unnecessary or would create an extra burden for the company.

The meeting will be May 11 at The Ritz Charles in Overland Park.

Out-of-Stock Options

For those of you concerned about the occasional oil that may go OUT OF STOCK for a period of time, products like VALOR and LEDUM, believe it or not, this should come as welcome news. Many times it is precisely because of Young Living’s commitment to quality that an oil or product will go out of stock. It shows you the level of commitment that Gary Young has… to bring the worlds finest quality essential oils to market without compromising QUALITY for quantity. This is the kind of commitment needed that assures consistent, reliable results!

Watch this video to learn more on this topic by clicking on this link… A Note on Rare and Seasonal Essential Oils from Young Living on Vimeo

Connect with me to order and learn how to use Young Living’s essential oils!

DEALING WITH OUT-OF-STOCKS Dealing with out-of-stock oils and other Young Living products can be frustrating especially when it is a product that you depend on daily. Please be assured that Young Living is keenly aware of your frustration and is taking proactive steps and aggressive action to help remedy this situation.

Valor has been out-of-stock, or available on a very limited basis for quite awhile now… it all stems because of the lack of availability of black spruce essential oil that meets our strict standards.

In fact, around the world the natural resources needed to produce our essential oils are disappearing, which is why Gary Young is constantly on the search and procuring more land in order to help meet current and future demands. Whenever possible we prefer to own our farms in order to grow and distill from our own aromatic plants. Young Living recently acquired land in British Columbia, Canada for our new “Northern Lights” Young Living farm in order to help meet the growing demand for black spruce (used in our Valor blend) and ledum (a seasonal oil)… adding yet another farm and distillery to our arsenal !

New Young Living farm land in British Columbia, Canada In addition to the farm in British Columbia, Young Living has also recently procured land for a farm in Kona, Hawaii in order to meet the growing demand for sandalwood . Typically sandalwood is grown in India & Sri Lanka but their supply is disappearing for a host of reasons. The sandalwood being produced on our new farm in Hawaii is purported to be an even higher grade of sandalwood… a win win situation for all!

Sometimes the lack of ability to procure oils from our partner farms comes not from diminishing supplies but because they are in regions of the world torn apart by violence and are currently considered restricted war-zones. Vetiver and Clove are two such oils as they come from Somalia and Madagascar.

Young Living continues to search the world over for suitable land to acquire for our own additional farms and also continues to search for suitable partner farms to do business with.

COMMITMENT TO QUALITY A few months ago there was some excitement generated as they had found a large supply of black spruce oil but the excitement faded quickly as the testing of this oil wasn’t up to par with Young Living’s testing standards for therapeutic quality and unfortunately the oil couldn’t be used. This commitment to quality and Gary’s unwillingness to comprise on quality for quantity is one of the things I love about Young Living. This kind of dedication and commitment assures of of the best possible product to produce the best possible outcomes.

The following is a Facebook post by Jared Turner, the Chief Sales & Marketing Manager at Young Living regarding the recently purchased land up in British Columbia.

“Join me in congratulating our Canadian members on their new Young Living farm and soon-to-be essential oil distillery! Although the crown jewel of our Canadian friends, members from around the world are welcome at this farm once it’s up and running.

This farm, located in British Columbia, will harvest and distill black spruce, ledum and other important botanicals. Like our conifer farm in Highland Flats, we’ll also be engaged in reforestation of the trees we harvest.

Gary is up there right now digging the foundations for the new distillery and called yesterday saying he was in desperate need for assistance with operating some heavy machinery, so we asked the Diamonds for help. A few minutes after we asked we had several individuals drop everything they had going on to volunteer to go, including Royal Crown Diamond, Scott Schuler and Diamond, Chip Kouwe. (That’s leadership right there.)

Remember, this is what is required sometimes when we can’t find a partner farm to supply us with quality oil– we have to do it ourselves! We will continue working hard to provide you the highest quality oils in the world, one new farm at a time.

With these pictures you are witnessing Seed-to-Seal firsthand. (Oh, and by the way, I think this is Gary’s first “selfie” picture!)”

OUT OF STOCK OPTIONS

More comments from Jared Turner concerning YL’s out-of-stock situation:

“As Travis has mentioned, we continue to aggressively acquire additional farmland and partner farms to alleviate the out-of-stock situation. In fact, Gary will be traveling this week to Morocco, France and other places to identify and acquire new YL-owned farmland, and partner farm relationships. One of the awesome competitive advantages YL has is its wide range of product offerings. When the supply of one oil is slow due to seasonality or other factors, we have others we can recommend as substitutes until that particular oils comes back in stock. We’ll be leveraging this unique YL strength more and more.

We sat down with Gary to ask him what were some good substitutes for some of the current out-of-stock oils. Here are his recommendations (please feel free to share with your teams):”

I note that in the next product catalog we will incorporate the names of similar (substitute) oils in each oil description so members can have this information at their fingertips.

If you would like to learn more about Young Living products simply contact an Heaven Scent Oiler today!

NOTICE & DISCLAIMERS

References to the use of essential oils refers SOLELY to Young Living Essential Oils and products. The IMPORTANCE of using PURE, unadulterated essential oils cannot be stressed enough.

All information and content expressed here are my personal opinions and experiences or those of others. They are meant for educational purposes and are not those of Young Living Essential Oils or any company or corporation.

It is your responsibility to address your health needs with your physician and seek professional help when you need it. Since I'm not a licensed physician, I can't diagnose or prescribe for you; the decision to use, or not to use, any of this information is the sole responsibility of the reader and any application of the information provided constitutes the explicit waiver of any liability on my part. I practice and teach "self-responsibility" and as such I encourage you to educate yourself and apply your own better judgment when professional help is needed. Do not apply any information provided here if you are not willing to assume the risks. If you do use the information provided here without the approval of a health professional, you are prescribing for yourself, which is your constitutional right, but I assume no responsibility. No express or implied guarantee is given regarding the effects of using any of the products described herein.

This information has been designed to help educate the reader in regard to the subject matter covered. This information is provided with the understanding that the publisher and its authors are not liable for the misconception or misuse of the information provided. The publisher and its authors shall have neither liability nor responsibility to any person or entity with respect to any loss, damage, or injury caused or alleged to be caused directly or indirectly by this information.

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he most pronounced change in corporate compensation practices over

the past decade is the escalation and recent decline in executive and

employee stock options. In 1992, firms in the Standard & Poor's 500 granted their employees options worth a total of $1 1 billion at the time of grant; by 2000, option grants in S&P 500 firms increased to $119 billion.' In 2002, option grants in the S&P 500 fell to $71 billion, well below their peak, but still a six-fold increase from a decade earlier. Despite-or perhaps because of-their growing importance, employee stock options have become increasingly controversial.

The main argument in favor of stock option plans is that they give executives a greater incentive to act in the interests of shareholders by providing a direct link between realized compensation and company stock price performance. In addi - tion, offering employee stock options in lieu of cash compensation allows compa - nies to attract highly motivated and entrepreneurial employees and also lets companies obtain employment senices without (directly) expending cash. Options are typically structured so that only employees who remain with the firm can benefit from them, thus also providing retention incentives. Finally, stock options encour - age executive risk taking, which can mitigate problems with executive risk aversion.

But the incentives provided by stock options have also been criticized. The recent accounting scandals at Enron, WorldCom, Global Crossing and other com -

'Option values are in 2002-constant dollars and are based on Compustat's ExecuComp data; see Figure 1below for calculation details. Data are not available for all S&P 500 firms; the total for S&P 500 firms is estimated as 500 times the a\erage grant for S&P 500 firms with available data.

Brian J Hall is Professor of Business Administration, Graduate School of Business, Harvard University, Boston, iMnssachusetts. KevinJ illurphj is E. illorgan Stanlq Chair in Business Administration, illarshall School of Business, Univmsity of Southern California, Los Angeles, California.

panies have been linked to excessive risk taking and an excessive fixation on stock prices, both allegedly caused by the escalation in option grants (Cassidy, 2002; Madrick, 2003). Moreover, these scandals have focused attention on problems with current accounting practices, which in turn has opened a debate on the accounting treatment of employee stock options. Under current U. S. accounting rules, com - panies generally do not treat options as an expense on company financial state - ments. Proponents of expensing options argue that expensing will generate more informative financial statements and improve the credibility of reported earnings. Opponents of expensing worry that expensing will cause companies to grant fewer options, especially to lower-level employees, which in turn will "destroy the engine that fueled the economic growth" of the 1990s.

In this article, we explore the trouble with stock options. We begin by describ - ing patterns in employee options since the early 1990s and by describing the relevant tax and accounting rules; we later argue that these rules help explain the widespread use of option-based pay. Next, we analyze the efficiency of providing compensation and incentives using stock options, focusing on the fact that risk - averse and undiversified employees will value options significantly less than they cost the company to grant. We identify several problems with options granted to top executives and even more problems with options granted to lower-level employees. These conclusions deepen the question of why grants of options have increased so dramatically, especially among rank-and-file workers. We consider several explana - tions for the recent trends in option practices, including changes in corporate governance and tax laws, managerial influence over their own pay packages, the bull market in equities of the 1990s and our preferred hypothesis that the perceived cost of options to boards and managers is lower than the actual economic cost of granting such options.

A Brief Primer on Stock Options

Employee stock options are contracts that give the employee the right to buy a share of stock at a prespecified "exercise" price for a prespecified term. Most employee stock options expire in ten years and are granted with an exercise price equal to the market price on the date of grant. Typically, a grant of stock options cannot be exercised immediately, but only over time; for example, 25 percent might become exercisable in each of the four years following grant. When a stock option can be exercised, then the option is said to be "vested." Employee options are nontradable and are typically forfeited if the employee leaves the firm before vesting (although "accelerated vesting" is a commonly negotiated severance benefit for top-level executives, especially following a change in control).

When an employee exercises an option, the company typically issues a new share, which increases the number of shares outstanding. Although some compa - nies require employees to pay exercise prices in cash, most companies offer "cashless exercise programs," where the employee pays nothing and simply receives the value of the spread between the market price and the exercise price either in cash or in shares of company stock.

Table 1 Option Grants as a Percentage of Outstanding Shares and as Value per Employee, by Industry, 1993-200 1

Panpl B Average Grant-Date L'nlu

Learn stock and options trading! Maximize your investment income!

There are a million reasons to start earning money from stock and options trading.

You might be in the market for a part-time job to make ends meet when your day job, or night job, just isnвЂ™t sufficient.

Perhaps youвЂ™re doing just fine.

But you know you could be getting more out of life and youвЂ™re ready to take charge of your career.

Perhaps youвЂ™re ready to join the ranks of thousands of others by trading in stocks and options to build a serious and rewarding income.

Or the more than millions who use options trading to provide for a supplemental part-time income.

My guess is, however, that if you come to this website in the first place, youвЂ™re hoping to get more out of investing in stocks and options than just getting a fixed monthly pay cheque. You might not have any experience in trading stocks, or had not heard the term options before, but you have the Desire to learn more, to gain more knowledge.

The good news is youвЂ™re on the right track. The bad news is itвЂ™s going to take some effort on your part. The good news about the bad news is that it can be easier than you may think. Why do I say that? ThatвЂ™s because options is such a flexible instrument that it can be extremely simple to use or can be as complex as you can imagine!

If your goal is to achieve a consistent part-time income from trading stocks and options, or to join the ranks of those thousands people making a successful full-time living with it, then you have a lot to gain by following this website.

I wish IвЂ™d had someone to learn from when I began trading. It would have saved me a tremendous amount of heartache, time and money. You will know where to get the information, avoid the mistakes IвЂ™ve made and be successful in less time than IвЂ™ve done it, because IвЂ™m laying the blueprint out for you in sharing what IвЂ™ve learned.

On the other hand, I have no intention to mislead you to believe that stocks and options trading is for everyone. Options trading is a highly speculative venture and it has substantial risk involved. If you own an options and it expire worthless, you will loss 100% of your investment!

As you read through this website, do you hear yourselves saying, вЂњYes! I can do it too! вЂќ Or do you hear another voice telling you, вЂќ This is too risky! Too complicated and do I need to get myself involve in something so speculative? вЂќ

There is nothing wrong with either reaction. Trust your gut feeling and do what you feel is the best for you.

The real value of this website is not what it has written, but it is your OWN REACTION to what you read.

It is to stimulate your mind and readily create strategies that will suit your own trading pattern.

Be sure you have a pen and paper on hand when you access this website.

The knowledge, strategies and tips written will cause important ideas to flash into your mind! You will be surprised and amaze by your own inventive ideas that have sprung to life!

The steps to successful trading in stocks and options are as follows:

CEO Stock Options: Hardly Rewarding

Posted on Strategy Freek: May 18, 2009 9:43 PM

Any idea why we continue to reward top executives with stock options? We accept it, nowadays, as a given, but why do we have that practice in the first place?

You might say "because it constitutes performance-related pay; through them, you financially reward top managers for their achievements". Fair enough. Because for many of us mortals our pay depends to some extent on our performance. However, do realize that for CEOs, for example, this component is often as high as eighty percent. Eighty percent! Do you know many people (employed in the same large corporations that these executives head) whose salary is eighty percent dependent on some measure of their achievements? Not many I suspect.

But, in theory, these large corporations that reward their top managers through stock are right—and I am saying "in theory" for a reason. This practice—of offering CEOs stock-based pay—is a recommendation straight out of something called "agency theory." It is one of the few academic theories in management academia that has actually influenced the world of management practice. It is basically a theory that stems from economics. It says that you have to align the interests of the people managing the firm (top executives) with those of its shareholders, otherwise they will only do things that are in their own interest, will be inactive, lazy, or plain deceitful. Yep, these economists have an uplifting worldview. But that is why we have such a huge performance-related component in the pay of most top executives.

But are you really sure you want people like that managing your firm? People who will be lazy and only operate in their own interest if given a chance? Do you really want a CEO who really needs performance-related pay and who otherwise, if put on a fixed salary, wouldn't do much and just hang about? In case you missed it, I intended this as a rhetorical question.

But anyway, we give them stock—and lots of it—to incentivize them. But the question still lingers: why stock OPTIONS? And that's a story in itself.

Agency theory doesn't only say that people will be lazy and deceitful if given a chance; it also says that managers are inherently risk-averse; much more risk-averse than shareholders would like them to be. And the theory prescribes that you should give them stock options, rather than stock, to stimulate them to take more risk.

More risk. you might think. Do we really want CEOs of large corporations to take MORE risk. Is it not, given recent events in the world of business, that we would like our top executives to be a little less risk taking for a change. Ah, that's what you might think now, but it is not what agency theory thinks, and it is not what the incentive structure of most public corporations nowadays is geared to do.

Because stock options do stimulate risk-seeking behavior, as we know from academic research. Options, as you might know, represent a right to buy shares at a certain price at some fixed point in the future. If you are given the right to buy a share in company X for $100 in January 2010 and by then the share price of X is $120, you will have made 20 bucks. However, if the company's share price by then has dropped to $90, your option is worthless. We then say it is "out-of-the-money"; you're not going to exercise your right to buy at 100 when the market price is merely 90.

In that situation, if the CEO of X has many stock options, it stimulates him to be very risk seeking. For example, if by August 2009 the share price is 90, he will be inclined to engage in risky "win or lose" moves. If the risk pays off and the share price rises well above a 100, the stock options will become worth a lot of money. However, if he loses, and the share price plummets even further, say to 60, no worries; it doesn't matter. The stock options to buy at $100 were worthless anyway; whether the stock trades at 90 or at 60.

And research by for example Professors Gerry Sanders from Rice University and Don Hambrick from the Penn State University showed that these things work. They examined 950 American CEOs, their stock options, and their risk taking behavior. They found that CEOs with many stock options made much bigger bets; for instance, they would do more and larger acquisitions, bigger capital investments, and higher R&D expenditures.

However, they also showed that they weren't always very good bets. The option-loaded CEOs delivered significantly more big losses than big gains. That's because they didn't care much about the losses (their options were worthless anyway); all they were interested in were the potential gains.

Moreover, Professor Xiaomeng Zhang and colleagues, form the American University, examined the relationship between stock options and earnings manipulations; plain illegal behavior. They investigated 365 earnings manipulation cases and showed that CEOs with many "out-of-the-money" options were more likely to misrepresent their company's financial results (and get caught doing it!).

Hence, even if as a board member or shareholder you'd want to stimulate your CEO to take more risks—and I guess that is a big IF—I am not so sure that stock options will get you the kind of risk you're after.

Today we’re going to look at Safeway (SWY) and how you can use options to reduce your cost basis and profit from the recent decline in the stock.

SWY shares are down 5% from $16.29 to $15.50 after reporting 3 rd quarter earnings earlier this week. The company fell short on revenue expectations but was able to beat earnings estimates.

The grocery store said sales declined 0.2% last quarter because they didn’t increase prices as much as expected.

However, earnings per share came in at 45 cents. This easily beat the 42 cent estimate and was up 18% from the same quarter a year ago.

SWY’s earnings beat isn’t as good as it looks. Sure they beat earnings per share estimates, but it wasn’t because they made more money.

In fact, net income fell to $108 million from $130 million in the same quarter. The only reason EPS increased was a massive stock buyback that reduced outstanding shares by 31%!

So far this year, the company has repurchased 57.6 million shares for $1.2 billion. And they have $0.8 billion authorized for additional buybacks.

Safeway’s losing ground to bigger retailers like Target (TGT) and Wal-Mart (WMT) who are making a big push into the grocery business.

In order to stem the tide, SWY rolled out a new customer loyalty program last quarter.

The “Just for U” program is designed to get customers to shop at their stores more often and buy more when they’re there. So far the program has been successful in modestly boosting sales. But it’s come at the expense of higher operating costs.

In my opinion, the program won’t be enough to counteract the impact of losing sales to TGT and WMT. But it will likely stem the tide enough to end the stock’s 30% slide from the 52-week high.

Here’s what to do now…

Let’s assume you invested $1,630 to buy 100 shares of SWY at $16.30 before earnings. So you’re down about 5%. But you don’t want to sell the stock because it has a hefty 4.5% dividend yield.

Selling the SWY March 2017 $17 covered call can rescue this trade .

Right now you can sell the March 2017 $17 call for $0.75 for every 100 shares you own. So you’ll collect $75 in option premium for selling one contract. And you’ll keep the 100 shares of SWY so you’ll collect $35 in dividend payments before the options expire.

Dividend payments and option premium will reduce your cost basis $110 to $1,520. So you’ll own 100 shares of SWY at an average cost of $15.20.

There are two possible outcomes for this trade…

First, if SWY is above the $17 strike price, the option holder will exercise their right to buy your stock at $17 per share. Your 100 shares will be called away or sold for $1,700.

But that’s just fine by us… Remember, we reduced our cost basis to $1,520. So we’re out of the trade with an 11% profit of $180.

However, a more likely scenario in my opinion is SWY never reaches $17.

Don’t forget, SWY is losing ground to bigger competitors and the new customer loyalty program is yet to be proven effective. That’s likely to keep a lid on any positive momentum in the stock.

If SWY stays below $17 until March, the option will expire worthless. You’ll get to keep the $75 in option premium, the $35 in dividend payments, and you’ll still own the stock at an average price of $15.20 per share.

In my opinion, selling a covered call against your SWY stock holdings is better than selling or doing nothing. This strategy reduces your cost basis and puts you on the fast track to turning this losing trade into a winner.

Stock Options – How can you profit from them?

What are Stock Options?

Stock Options share some similarities with futures contracts and with normal stocks, but they are inherently different.

Options are simply a contract, you do not own the underlying stock that determines the value of your options contract. Unlike stocks which you can hold indefinitely, options contracts all have an expiry date, and the closer to the expiry date you get the less your option is worth.

As you do not actually own the stock only a promise to pay the difference between the stock price now and the stock price at some point in the future you will see that the options contract cost as little a 2% to 20% of the cost of owning the stock.

Stock Options are simply a vehicle to achieve a goal. For those people who cannot use leverage to increase their total investment pot, Options are a cheap and effective way to leverage your invested capital.

The best way to understand options is to run through an example.

Stock Options Versus Stocks

For example. You have $1,000 to invest.

Strategy 1 – Buy the Stocks

You could buy 5 shares of Amazon Inc. (Ticker:AMZN) at $200 per share.

Total Costs $1000

If Amazon moved up 10% over the next 2 months to $220.

Your profit would be ($220 – $200) = $20 per share. 5 Shares * $20 = $100

Strategy 2 – Buy Options on the Stock

You could by one “At the Money Call Contract” for AMZN with a strike price of 200 and an expiry date of May 21 2017. The contract value is $10 per share. Because you will control 100 shares with each contract and you buy one contract, your costs for the trade are $1000.

In options speak:

1 contract means you will have control over 100 shares of AMZN

At the money means the strike price of $200 per share is equal to the actual stock price.

Strike price is the point at which the option will have a value (apart from the time value)

Expiry Date is the date at which the option contract expires and loses all value.

In the same scenario as above the stock price moves 10% to $220. The difference in price is $20 per share. The contract was at a strike price of $200, therefore $220 – $200 = $20 profit per share.

Theoretical profit would be 100 * $20 = $2000. A $2000 gain from a $1000 investment. This means a gain of 200%.

I say theoretically because when you buy an option the clock starts ticking on the time value. If the stock price took until the final month before expiry to move to $220, then you would have lost all of the time value of the contract which could reduce your profits. However, if the stock had moved 10% in a single day you would have secured almost all of the 200% and also kept much of the time value in the stock.

What are the risks of options, compared to simply buying the stock?

If the stock price moves against you, you can lose the entire investment . With stocks this is quite rare, stocks rarely move to zero unless the company goes bankrupt.

If the stock price does not move at all in the time period, your investment can also expire worthless.

The stocks needs to move in the direction you place the bet to make a profit. If the stock price moves strongly your profits can be quite large.

Strategy 3 – Shorting a stock using options.

Using the exact same scenario but instead of us expecting the stock to increase in value we expect it to decrease.

AMZN has a current stock price of $200

You could by one “At the Money Put Contract” for AMZN with a strike price of 200 and an expiry date of May 21 2017. The contract cost $10 per share and there are 100 shares in a contract. Cost of investment is $1000.

In options speak:

1 contract means you will have control over 100 shares of AMZN

“At the money” means the strike price of $200 per share has already been reached.

Strike price is the point at which the option will have a value (apart from the time value)

Expiry Date is the date at which the option contract expires and loses all value.

In this scenario the stock loses 10% in value to $180. The difference in price is now $20 per share. The contract was at a strike price of $200, therefore $200 – $180 = $20 profit per share.

Theoretical profit would be 100 * $20 = $2000. This means a gain of 200%.

Options Summary.

Options are a complex instrument, but the more you understand them the more they make sense. With experience you will see that they are an incredibly flexible investment tool. However, before even thinking about trading options you will need to understand how to pick stocks, evaluate market direction and formulate a strategic systematic approach to investing.

Options are incredibly volatile and can very quickly lose your entire investment. Options are a numbers game and should only be used by advanced traders who have received specialist training in the topic.

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Important Note: Stock Market Risks

The stock market can go down as well as up. We recommend that if you are interested in investing your own money in the stock market you seek to educate yourself to the highest possible level before you invest. Liberated Stock Trader does not seek to assure you that investing in the stock market is easy. There is no easy money in the stock market. It does take hard work. Anyone promising instant riches in the stock market should not be believed. There is considerable risk of financial loss if you do not know what you are doing. Have a risk management strategy in place. If in doubt do not invest.

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This is an independent, unbiased resource for learning to trade the stock market. Liberated Stock Trader receives no payments from any company whose stocks are discussed and promotes no particular stock. If the author holds a stock it will be disclosed in the article.

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Summing It All Up

Stock Compensation: Stock Options

Stock compensation to employees and other suppliers of goods or services can take many forms, including the stock option grants, awards of restricted and non-restricted stock, cash payments based upon the company’s share price, and employee stock ownership plans, amongst many others. The one common attribute of the many varying forms of stock compensation is the fact that the entity involved in these types of transactions should recognize a compensation expense associated with the stock compensation provided to the employee. This blog is going to concentrate on stock option awards; however there may be similarities with other forms of stock based compensation.

Granting stock options are a great way to attract and retain top talent, reward employees for services in the early life of a business with growth potential, and provide a form of compensation to employees without any initial cash outflow to the Company. However, I have seen several cases where companies have granted stock options to employees and others but were totally unaware of the accounting requirements for the options and thus have not recognized any compensation cost related to the granting of stock options.

Without getting bogged down in the detail, companies should recognize compensation cost for stock options over the related service period based upon the grant date fair value of the options. Furthermore, Accounting Standards state that the fair value of a stock option should be estimated using a valuation technique or option-pricing model that considers several variables, one of which is the underlying stock’s current price. Since there are many companies that are not publicly traded issuing stock options, there is a lack of readily available stock price to use in calculating the fair value of the stock options. Accordingly, those companies must determine the current value (i. e. the fair value, not book value) of the company’s stock via a formal valuation report or other acceptable valuation approach.

Beyond the accounting requirements, the granting of stock options could also have an income tax effect for the recipient and/or could create taxes or other penalties to the company if it fails to report certain information regarding the stock option grant to the recipient. In addition, the company will want to make sure that these stock options are structured in such a way to comply with any other regulations.

In summary, there is much more to the granting of stock options than many companies are aware of. If you have recently granted stock options or are planning to grant stock options in the near future, please bring this to the attention of your accountant, tax advisor, and legal counsel to ensure that the options are designed and documented appropriately, the appropriate steps are taken to determine the current fair value of the company’s stock, and they are accounted for properly.

Jonathan Poppel, CPA

¡Sé sociable, comparte!

Pío

¡Sé sociable, comparte!

2 Responses to Stock Compensation: Stock Options

Howdy, I do believe your website could be having internet browser compatibility issues.

When I look at your website in Safari, it looks fine however, when opening in IE, it has some overlapping issues. I simply wanted to provide you with a quick heads up! Apart from that, great blog!

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Stock index options

A stock index option is a contract that gives its owner the right to buy (call option) or sell (put option) a stock index (a basket of stocks) at a fixed value until a specified date. Stock index options are offered on both options and on futures exchanges. Since 1983 when the first stock index option -- CBOE 100 options (now S&P 100 options) was introduced, the growth of stock index options has been rapid. Today, well-known indexes, including the S&P 500, the S&P 100, the NYSE Composite Index. the Nasdaq-100 Index. a series of Russell indexes. a variety of international and regional indexes, along with specialized indexes, have been listed on virtually all exchanges.

In the options world, these options work exactly like regular stock options except that an index rather than a particular stock is the underlying asset. Options of stock index futures have the futures contract as the underlying. All stock index options, whether traded on a futures exchange or an options exchange are cash-settled (delivered) versus physical settlement (delivery).

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Opciones de alamcenaje

Options trading can be traced back to 332BC where a man known as Thales bought the rights to buy olive prior to a harvest, reaping a fortune. Options then turned up again during the tulip mania of 1636 where options on tulips were widely bought in order to speculate on the soaring price of tulips. A market was then formed towards the end of the seventeenth century in London to trade in both call and put options.

That was the first instance of trading both call and put options over an exchange. By 1872, Russel Sage introduced Over The Counter call and put options trading to the United States which was unstandardized and illiquid. The emergence of options trading as we know it today comes with the setting up of the Chicago Board of Options Exchange (CBOE) and the Options Clearing Corporation (OCC) in 1973 where standardized exchange traded call options were introduced. By 1977, put options were also introduced by the CBOE and since then, options trading took on the standardized exchange traded form that we are familiar with today.

First Account of Options 332 B. C

The very first account of options was mentioned in Aristotle's book named "Politics", published in 332 B. C. Yes, Before Christ! That's how far back human has used the concept of buying the rights to an asset without necessarily buying the asset itself, yes, an option or what we call in finance as a "Contingent Claim". Aristotle mentioned a man named Thales of Miletus who was a great astronomer, philosopher and mathematician. Yes, Thales was one of the seven sages of ancient Greece. By observing the stars and weather patterns, Thales predicted a huge olive harvest in the year that follows. Understanding that olive presses would be in high demand following such a huge harvest, Thales could turn a huge profit if he owned all of the olive presses in the region, however, he didn't have that kind of money. Instead, Thales thought of a brilliant idea. He used a small amount of money as deposit to secure the use of all of the olive presses in the region, yes, a CALL OPTION with olive presses as the underlying asset! As Thales expected, harvest was plentiful and he sold the rights to using all of these olive presses to people who needed them, turning a big fortune.

By controlling the rights to using the olive presses through an option (even though he didn't name it "option" then), Thales had the right to either use these olive presses himself when harvest time came (exercising the options) or to sell that right to people who would pay more for those rights (selling the options for a profit). The owners of the olive presses. who obviously didn't know how the harvest is going to turn out, secured profits through the sale of the "options" to Thales no matter how the harvest turned out. This contingency claim procedure defined how options work since that day and started the long history of options trading. In fact, the olive press owners could be deemed to be the first ever human to have used a Covered Call options trading strategy! Yes, they owned the underlying asset (olive presses in this case) and sold rights to using them, keeping the "premium" on the sale no matter if the presses were eventually used or not!

Tulip Mania of 1636

The tulip mania of 1636 in Europe is a classic economics and finance case study where herding behavior created a surge in demand which cause the price of a single commodity, tulips in this case, to soar to ridiculous prices. This surge in price begun the first mass trading of options in recorded history.

Tulips imported into Europe from Turkey and Holland quickly became a symbol of affluence and beauty in the seventeenth century. Tulips then were like designer cloths and watches which people from all levels of society wanted and the hype created caused tulip prices to skyrocket on the overwhelming demand. Due to the overwhelming demand for tulip, demand for tulip bulbs by growers and dealers also increased exponentially, pushing up the price at the producer level. As the price of tulip bulbs increased almost on a daily basis, Dutch dealers, which was the biggest producer of tulip bulbs then, started tulip bulb options trading so that producers could own the rights to owning tulip bulbs in advanced and secure a definite buying price. Yes, Call Options on tulip bulbs. What started as a means of hedging producer risk became a speculative frenzy as the price of tulip bulbs skyrocketed between the end of 1636 to February of 1637. Mass speculative interest in tulip bulbs options led to people from all level of society buying those options with everything they have, including selling or mortgaging their homes.

All price bubbles burst. On February of 1637, the price of tulip bulbs had gotten so high that it can no longer find sensible buyers to sell to. The buying frenzy immediately turned into a selling frenzy. Price of tulip bulbs collasped quicker than it rose and almost all options speculators were wiped out as their options fell out of the money and worthless. The Dutch economy collasped and people lost their money and homes. Since a lot of options speculators were wiped out during the tulip mania, options trading also gained a notorious reputation for being a dangerous speculative instrument. This is also why you should only trade options in a speculative position with money that you can afford to lose. Maximizing leverage by dumping all your money into a single unhedged call or put options position for the purpose of directional speculation is repeating the history of the tulip mania.

Options Trading in London in 1700 to 1860

Even though options trading gained a bad name, it doesn't stop financiers and investors from acknowledging its speculative power through its inherent leverage. Put and Call options were given an organised market towards the end of the seventeenth century in London. With the lessons learnt from the tulip mania still fresh in mind, trading volume was low as investors still feared the "speculative nature" of options. In fact, there was growing opposition to options trading in London which ultimately led to options trading being declared illegal in 1733. Since 1733, options trading in London was illegal for more than 100 years until it was declared legal again in 1860. Yes, a ban of more than a century due to ignorance and fear.

Options Trading in USA

Russell Sage, a well known American Financier born in New York, was the first to create call and put options for trading in the US back in 1872.

Russell Sage turned from a political career to a financier career when he bought a seat in the NYSE in 1874 and died with a huge fortune of about $70 million in 1906. The options that Russell Sage created where the first OTC options in the US and were unstandardized and highly illiquid. That didn't stop him from making millions within just a few short years, controlling New York City Elevated transit lines through controlling a large amount of the company's shares through owning options of the company's shares. However, Russell Sage lost a fortune in the market crash of 1884 which made him give up options trading entirely. Even though Russell Sage gave up options trading, the OTC options trading market that he started continued to function without his participation. Options continue to trade in an unregulated manner all the way till the establishment of the SEC after the great depression.

CBOE and OCC formed in 1973

About 100 years following the introduction of options trading to the US market by Russell Sage, the most important event in modern options trading history took place with the formation of the Chicago Board of Exchange (CBOE) and the Options Clearing Corporation (OCC) in 1973. The formation of both institutions truly is a milestone in the history of options trading and have defined how options are traded over a public exchange the way it is traded today.

The most important function of the CBOE is in the standardisation of stock options to be publicly traded. Yes, prior to the formation of the CBOE, options were traded over the counter and are highly unstandardized, leading to an illiquid and inefficient options trading market. In order for options to be openly traded, all options contracts need to be standardized with the same terms across the board. That was what the CBOE did for call options back in 1973. For the first time, the general public is able to trade call options under the performance guarantee of the OCC and the liquidity provided by the market maker system. This structure continues to be used today. By 1977, put options were introduced by the CBOE, creating the options trading market that we know today. Since then, more and more exchanges were set up for options trading and better computational models for the pricing of options were introduced.

About Kevin Mears & Stock Options Kevin has spent his life in the livestock industry growing up in a family that was active on a national level showing and raising NRHA & NCHA performance horses. As a youth Kevin was active FFA serving as a State FFA Officer and remains involved today, as an adult member of the state and national officer candidate selection committees. Kevin participated 4-H showing Market Steers along with Maine and Chi breeding cattle in the 90вЂ™s.

He attended Black Hawk Jr. College where he was active in the livestock judging program and member of a nationally recognized team. After college Kevin served as an eastern regional field services for a beef semen company and also served the livestock industry as director of industry relations for a state producer association. More recently from 2004 to the fall of 2008 Kevin worked for Premier Services of Wilmington, Ohio. Kevin served as the nutrition specialist for the companies line of specialized livestock show feeds, was directly responsible for all marketing and advertising efforts, and new product development.

In the fall of 2008 he left Premier Services to embark on a new journey as he started Stock Options, Marketing and Merchandising Solutions. His goal was simply to work with top quality folks with solid cattle, to represent them honestly and fairly and to simply do the best job presenting them to the buying public.

Kevin is a 2002 graduate of the Missouri School of Auctioneering.

Kevin Mears, DBA Stock Options Marketing is licensed and bonded with the USDA Packers and Stockyards Administration.

Please complete and submit the form below to receive our E-news for the latest updates on upcoming livestock events and/or to receive our quarterly newsletter on ways to better market your livestock. Fields in RED are required.

MICROSOFT TO REPLACE EMPLOYEE STOCK OPTIONS WITH EBAY STOCK It's More Valuable Than Microsoft's Own Stock In the Long Run, Says Gates

Redmond, WA /DenounceNewswire / -- 9 July 2003 -- Microsoft Corp. is overhauling its employee stock option program and instead will issue shares of eBay, Inc. to all of its employees as it acknowledges how the value and lure of its own options have plummeted in recent years. The new program, announced Tuesday, will commence in September.

"We took a long hard look at our industry, our market cap, and the road ahead," says Microsoft Chairman Bill Gates, "and after considering a long list of alternatives, we've decided that the best way to lure new employees and keep our existing employees is to offer them considerable quantities of eBay stock."

eBay, Inc. the San Jose, CA leader in online auctions, has seen its stock double in the past year, to a recent close above $114. Wall Street analysts expect eBay stock to continue to climb for at least the next twenty-five years, at which point it will be more valuable than all other companies combined.

"We're delighted and quite frankly, truly flattered at Microsoft's endorsement of our long-term value," said Meg Whitman, eBay's CEO. "This is yet another strong validation of our strategy, vision, and focus."

For years, Microsoft used stock options to attract bright young people who were not yet savvy enough to understand Microsoft's true nature. By selling their souls to the company, hundreds if not thousands of Microsoft employees became millionaires.

But since the downturn in the stock market three years ago, Microsoft shares have dropped considerably, and the exercise price of stock options is now higher than the actual price of Microsoft stock, rendering the options worthless.

"We originally got the idea to give eBay stock to our employees after we noticed the huge number of employees selling their worthless option certificates on eBay," says Gates. "After speaking with the employees, we learned how much they respected and valued eBay, so one thing led to another and today we're announcing this program."

Whether or not Microsoft will acquire eBay, currently worth over $36 billion, is not known. Microsoft could buy eBay for cash and still have over $10 billion in reserves, Wall Street analysts pointed out.

Copyright y copia; 1996-2003 Birdrock Ventures. Denounce is a satire website specializing in false press releases that are meant to neither inform nor educate. Todos los derechos reservados. No redistribution or copying without written permission from Denounce. com. DENOUNCE is a trademark of Birdrock Ventures.

401K Stock Options

A 401k is basically a retirement savings account that allows an employee to begin saving for their retirement fund, while also investing the account balance on a continual basis for additional returns. The balance of a 401k plan is typically tax-exempt, which means the account balance and interest earnings are not subject to income taxes until the account has reached maturity and the funds are withdrawn. One way 401k account holders invest their retirement funds is through 401k stock options, of which there are a variety available. Utilizing the funds of a 401k account properly and devising an effective investment plan is a crucial step in maximizing retirement funds and ensuring an enjoyable lifestyle during retirement. The following are some of the most popular 401k stock options that can be incorporated into your 401k investment portfolio.

Index Funds Index funds are unmanaged 401k stock options that continuously monitor a particular sector of the stock market, and are therefore useful analytical tools that should be utilized by any 401k stock investor. For example, the S&P 500 index fund tracks the stock statistics for 500 companies, which may include the indexes of small, mid, and large-cap stocks, as well as individual stock market sectors such as those related to technology, healthcare, and other industries.

Small-Cap Stocks Small-cap stocks are basically the stocks of smaller companies, and are therefore slightly riskier 401k stock options than mid-cap and large-cap stocks, as small business stocks can plummet or soar as a result of much more subtle business events. Nonetheless, small-cap stocks provide a unique opportunity because they are usually underpriced, as most investors tend to overlook them. The key to being successful with small-cap stocks is finding the stocks that will eventually grow into mid-cap and large-cap stocks in the future.

Mid-Cap Stocks In years past, the majority of mid-cap stocks were shares of large technology companies. However, as many of these technology companies have expanded and become large-cap stocks, the new mid-cap stock sector is being increasingly populated by newer retailers and health care providers. Although mid-cap stocks are less risky than small-cap stocks, they are slightly more risky than large-cap stocks.

Large-Cap Stocks Nearly 75% of the largest companies in the world fall under the category of large-cap stocks. The success of large-cap stocks depends primarily on the health of the economy, as they tend to perform well when the economy is thriving and poor during economic turmoil. Large-cap stocks are considered to be the most stable and reliable 401k stock options, as the stocks of established companies are much less likely to plummet unexpectedly.

Target Funds Target funds, also referred to as asset allocation funds, are custom managed funds that are specifically designed to meet the investment needs of the fund holder, and offer a high return on a specific target date listed within the fund terms. In general, target funds become safer investments as the target date closes in, as fund managers tend to allocate funds towards safer investments during this time. Target funds are an excellent option for individuals that are not experienced enough or willing to create their own unmanaged retirement investment portfolio.

International Stocks and Emerging Market Stocks Investing in international stocks is usually more risky and complicated, as the investor has to consider additional factors such as political events, currency fluctuations, government policies, and socioeconomic occurrences. Thus, international stocks are some of the riskiest 401k stock options available. The only types of stocks that are considered to be riskier than international stocks are emerging markets stocks, which are basically the stocks of companies within revolutionary industries and emerging economies. An example of emerging market stocks would be those related to alternative energy and other futuristic industries which may or may not be successful in the near future.

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Stock Option Training

Welcome To “Invest Online Info”!

FREE Stock Option Training!

The primary purpose of this website is to provide valuable, comprehensive online stock option training focused mainly on how to invest online . However, I have also included educational material on mutual funds, personal finance. and stock investing, as well as comprehensive online training for stock option trading.

I designed this website so it is easy to follow and progress in your stock option training. All you have to do is follow the page listing in the right margin. However, the How To Invest Online training index explains how the various lessons or articles are categorized and provides insight into the recommended order or learning.

Free online stock option training

To show you how to invest online and to assist with your online stock option training, I have also provided an online investment resources center with all the online tools I use for selecting and analyzing investments, a sampling of my current positions in stocks and stock options, a recommended reading list (including a few freebies), and my “Market Monitor ” revealing the current status of the market (i. e. “buy” or “sell”). All of these are available by clicking one of the five links above.

Bookmark InvestOnlineInfo. com and come back often for more free stock option training!

How To Invest Online

This article presents a thorough introduction on how to invest online successfully. It covers important considerations such as risk tolerance, investing to meet your objectives, finding investments, when to sell, and the mechanics of online investing among others. If you are new to investing, or just investing online, “How To Invest Online ” is a great place to start. Throughout this article, hyperlinks to more detailed discussions are included for clarity and completeness.

How To Invest Without Losing Sleep

The first rule of investing is “Don’t invest money you can’t afford to lose.” That’s a pretty wide open guideline. If I ask you how much money are you willing to lose, your answer will most likely be “None of it.” So, obviously, investing nothing does nothing for you. A better way to think of this is … only invest money you don’t have slated for a specific need in the next 5 or 10 years.

If you are paying your child’s college expenses starting in the next two years, that money should be parked in a “safe” account until you need it; a safe account might be a certificate of deposit (CD), money market account, savings account, or a “Prepaid Tuition Trust” plan. However, if you are saving for college for your 5-year old, you might do better with a growth-oriented investment in a 529 college savings plan.

So, how much can you afford to lose? … This is so dependent on so many things, it’s nearly impossible to give you an answer. For example, the right mount to invest, and how to invest it, depends on your job, your age, your income, the stability of your income, the security of your job or income source, whether or not your employer provides a pension … and if they do, the likelihood your employer will still exist (and still offer the pension) when you reach retirement age … just to name a few factors affecting how much and how to invest online or otherwise. And as if that were not enough issues to consider, the “right amount to invest” (and how to invest your money properly) changes dramatically as you get older.

However, with all these dependencies, there are a couple of general rules of thumb you should follow for your online investing. First, you should follow the 10% Rule which says, “10% of all you earn is yours to keep”, and “100 minus your age is the percentage of your investments you should have in stocks.”

Let’s explore the 10% Rule first. The 10% Rule is saying you should save “at least” 10% of all the money you “earn.” For every dollar you earn, you should put away at least 10 cents. Now, this doesn’t necessarily say you have to “invest” all of that 10%, but the longer the timeframe before you will need that money (which generally when you retire), the more you should “invest” for higher returns. The other thing to consider is people are living longer these days and saving/investing more than 10% is a very good idea.

Now, let’s look at the second rule … “100 minus your age in stocks.” This rule says regardless of how much you have to invest, the percentage that should be in stocks is 100 minus your age. For example, if you are 40 years old right now, then 100 – 40 is 60%. By this rule, you should have 60% of your total investments in stocks, stock mutual funds, stock exchange traded funds (ETF), and stock options.

The remaining 40% is generally presumed to be invested in bonds, but it could be in a number of other investment types as well (e. g. real estate, real estate investment trusts [REIT], CD’s, savings, trusts, precious metals such as gold and silver. etc.).

This rule gives you an idea of how to invest your money as well as an idea of how you should change your investment allocations as you grow older.

How To Invest Without Losing Sleep – Part 2

Assess Your Risk Tolerance

Another key factor you really must consider up front is how much risk are you willing to tolerate … I mean how much you can “Really” tolerate. Many novice investors don’t know much about investing up front, and as a result, they tend to be overly cautious and get less returns on their money over the long haul than they should have. On the opposite end of the spectrum, many investors think they are tough mavericks and can stomach all kinds of risk, but when the market tumbles, their whole world tumbles too with gut-wrenching despair.

So, how much risk can you tolerate?

This is a tough question to answer honestly when you are relatively new to online investing … I when I say “new to investing”, I mean you haven’t experienced a serious market tumble firsthand. In a moment, I will ask you to answer a few questions to yourself to help you decide how much risk you can tolerate, but first I will present a few guidelines and concepts.

First of all, you should never invest in anything you don’t understand. This means your online investing education is crucial. Some investments such as buying a CD or opening a savings account or even buying a stock can be extremely easy to do, but that doesn’t necessarily mean you are doing it wisely.

For example, if federal interest rates are currently around 1%, should you put all your money in a CD paying 1.2%?

There is no simple “yes/no” answer … it depends on a couple of important considerations such as the stability of the bank holding your CD and are interest rates likely to rise or fall in the next 6, 12, 18, 24, 36, or 60 months? If rates are likely to go up, you might want to buy a 6-month CD now, and then buy a longer-term CD in 6 months when interest rates will be higher, and you can therefore make more money. If the economy is in a tailspin (e. g. circa 2008 through 2011), you might want to grab that 1.2% CD … in a bank that’s Not going to fail … before the federal funds rate drops to zero percent. On the other hand, if you have no idea where inflation and interest rates are going to go, you might want to “ladder” your CD’s and split your money equally between 6, 12, 24, 36, and 60-month CD’s. Then when your 6-month CD’s mature, reinvest that money in the predominant rates at that time. … And CD’s are “easy” investments.

So, your online investing education is critical, and that’s what this article on “How to invest online” and this entire website is all about.

The next consideration for assessing your risk tolerance is “don’t bet your money that your risk tolerance assessment is correct.” … What does that mean?

It means you should invest your money across a spectrum of investment assets or types. You should have enough money to cover 6 months worth of living expenses in extremely safe liquid investments as your foundation. This protects you against losing your job. If you spend $2,000 per month on necessary expenses, you should have at least $12,000 in “cash” investments such as checking accounts, savings accounts, and money market accounts. Then if you lose your primary income, you can cut back on frivolous spending and carry yourself 6 months while you find another job. If your job is less stable or secure, you should have more than 6 months worth of expenses “in the bank.” If you have an extremely safe job, you might get away with less than 6 months worth. The rest of your money should be allocated among investments carrying different levels or risk.

For examples, CD’s are very safe (assuming you pick the safest banks), but they are not as liquid as “cash” securities. Treasury bonds are considered very safe; corporate bonds are rated by safety, but are less safe than Treasury bonds. Mutual funds and exchange traded funds have varying degrees of risk based on which securities (e. g. stocks, bonds, metals, sectors, etc.) they hold, but they are inherently diversified, so they are often considered safer than owning individual stocks.

However, some stocks have a long, long history of better stability than mutual funds. Derivatives such as stock options, commodity futures, and options on futures are considered “Speculative” meaning they are the most risky. However, as shown in this article on Stock Options Risk versus Stock Risk. this is not always the case. It’s all a matter of education and knowing what you are doing; so study and do your homework; really learn how to invest online. Here is an article that reveals 8 ways stock options are safer than stocks .

Incidentally, why should we bother with riskier investments?

Why don’t we just take the safest CD we can find, and put all your money in it? … There is an over-used cliché’ that says, “Higher rewards require higher risk.” Now, I don’t wholeheartedly accept that “wisdom”, because many so-called higher-risk securities (such as stock options) can be used with much less risk than the safest investments; it’s all a matter of knowing how to invest properly with these sophisticated securities.

But there’s more to it than just that cliché’. If you put all your money in a savings account or CD or even U. S. Savings Bonds for your entire career, you might have invested $200,000 and your balance might be worth $300,000. However, inflation often (maybe even most or all of the time) exceeds the returns on these investments which means your account balance is growing, but your money buys less than when you started.

Consider this example, assume this is 1960 and one dollar buys you a lunch. If you invest that dollar for 40 years in a savings account, you might have three dollars … but with inflation we have had over the last 40 years, you know most fast food restaurants charge you at least six dollars for the “Extra Value” meal. Your invested dollar … now worth three dollars … only buys you half a lunch! That’s inflation, and that’s why you can’t afford to put all your money in super-safe investments; you will miss out on the higher returns you could have, and should have, gotten. That’s called “opportunity risk”.

Now that you understand that your education on how to invest online and proper allocations of your money across varying degrees of risk are key factors in protecting yourself against incorrectly assessing your own risk tolerance, let’s see if we can get a feel for your risk tolerance.

To help you determine your risk tolerance so you can determine how to invest your money in a way that you can live with the potential ups and downs of the markets, I will ask you a few questions. Your specific answers to the questions and the cumulative total, doesn’t really matter so much as “how you feel” when you read the question. Try to visualize the situation and imagine yourself in that mental state.

Assume you have $1,000 in a mutual fund, and the market drops 20% in one day, what would you do? … Leave the money where it is, buy more shares, or panic and withdraw your money?

Now, assume you have $100,000 in a mutual fund and the market drops 20% for a one-day loss of $20,000, what would you do?

If you had to replace your car next week, would you be in danger of defaulting on your mortgage loan payment?

Do you struggle every month to cover all your bills?

If you put $5,000 in a new stock brokerage account, could you guarantee you would not be forced to take that money out to pay bills in the next 12 months … assuming you did not lose your current job or other “earned” income?

If you had $40,000 in cash securities, $30,000 in savings bonds, and no debt (including no mortgage), would you be willing to invest $2,000 in a stock call option that is deep “in-the-money ” for a stock that is steadily climbing in value? … Assume that if the stock keeps climbing steadily as it has for 1.5 years, you will make a $2,000 profit in three months, but if the stock stalls and drops 5%, you will lose 5% of your investment ($100).

We could go on and on with these kinds of questions, but hopefully you get the idea. You need to structure your finances so you have security and stability and learn how to invest online successfully first. Then try to determine how much risk you can live with. After that, step into the world of new investments slowly. Don’t buy 5 or 10 call options on your first order. Buy one at a time for three or six months or longer, until you know what you’re doing. See how you react when the market jumps up and down. As you build your wealth, slowly add more contracts and more investing online strategies.

How To Invest To Meet Your Objectives

What is your objective or goal for your investing?

Do you want to invest for growth (i. e. building wealth), income, or both? This is an important thing to determine, because how you invest and where you invest is highly dependent on this simple question.

If you have a long time horizon before you will need your money, you may fair better investing for growth … that is in stocks, mutual funds, or exchange traded funds (ETF) that invest in stocks paying little or no dividends but are expected to grow in value (i. e. the stock price is likely to go up). If you tend to hold your securities for a long-time, you get the added advantage of lower taxes. You get lower taxes for two reasons: (1) you only have a taxable event (i. e. you have to pay taxes on your gains) when you close your trade, and (2) tax rates on long-term capital gains are lower than ordinary income tax rates.

Assume you bought a stock in January. If you held that stock … which is growing in value … for 3 years, you will not report any gains and pay taxes until the year you sold it. Furthermore, when you hold a security for more than 12 months, you get the lower tax rate when you do sell it.

However, if you sold that same stock in June of the same year, you will have held it less than 12 months which means you must report the gain, and you will pay the short-term capital gains tax rate. This rate may be less than ordinary income tax rates, but it will be higher than the long-term capital gains tax rate.

On the other hand, if you are interested in building an income, you will pay taxes each year on any income (i. e. dividends or interest) you receive in each year. The tax rate may be less than ordinary income tax rates, but it may also be the same rate; either way, the tax rate on investment income tends to be higher than the capital gains tax rates.

For this reason, if you don’t need the income right now, you may want to consider putting your income-generating investments in an Individual Retirement Account (IRA) or similar tax-deferred account. When you do this, you will not be taking the income out of the retirement account until your retirement age (or later), and you can reinvest the dividends making your income grow faster.

So, you need to decide why you are investing … for wealth-building growth, income, or a combination of both. If you choose growth, you will invest in stocks (or mutual funds or ETFs) paying little or no dividends expected to grow in price or value. If you choose income, you will invest in bonds, dividend stocks, Real Estate Investment Trusts (REIT), trusts, etc. These are fundamental questions you must answer before you decide how to invest.

How To Invest Your Way

So far, we have discussed how much risk you can tolerate and why you are investing … for growth, income, or both. Now, we need to determine How you prefer to invest. There are lots of ways to let someone else handle your investing for you … in mutual funds, exchange traded funds, or hedge funds for instance … or you can learn all about how to invest online and take the reins yourself.

“Hands off” investing online or otherwise certainly sounds attractive. You just dump your money into an account and perhaps add to it automatically every month so it grows faster … what could be better? In fact, this is exactly what mutual funds, exchange traded funds, and hedge funds are designed to do. But is there a downside? … Why would so many people learn how to invest online themselves when they can go hands off instead?

There are generally three reasons you might want to know how to invest online yourself. First of all, “Hands off” investing typically pays less returns. For example, a really good mutual fund (if you can find one that qualifies) would return you 12% to 15% every year (which by the Rule of 72 says you would double your money in 4.8 to 6 years (ignoring any additional investments you make along the way).

However, if you use the stock option strategies and techniques taught for free on this website, InvestOnlineInfo. com, you can 50% to 100% per month. Maybe not every month, but many months. That means you could double your money in one or two months instead of 5 to 6 years. Even if you just successfully pick stocks, you can do better than 15% per year. The downside, of course, is you need to invest some time and learn how to invest yourself.

So, the first reasons to learn how to invest online and do it yourself is the potential of making more money. The second reason is fees. All “hands off” investments charge fees, and most of them charge based on the value of your account. In other words, the more money you have, the more you pay. In most other areas of business. the more you buy, the lower your price, but not in hands off investments. Of course, you will also pay commissions on self-directed investments, but you can get $5 commissions per trade and even a number of free commissions per year or month depending on the broker you choose. Check out my article on selecting an online broker for more information.

The third reason to learn how to invest online yourself is there have been recent cases of corruption and scandal in the mutual fund and hedge fund industry.

So, it’s time to decide … do you want hands off investing? If so, check out my articles on how to build a money machine with mutual funds. Or do you want to learn how to invest online yourself? If so, start reading about stocks and stock option investing. It’s all free at InvestOnlineInfo. com. and be sure to check out my Info Mall which offers great, recommended resources many of which are available for free simply for checking out some of my sponsors.

How To Invest Online – The Mechanics: Part I

You can learn how to invest online by studying this website and some of the recommended references and even by studying my free stock option picks web page, but you can’t actually start investing online until you open a brokerage account. The process is actually pretty easy and is explained in detail in my article on Selecting An Online Broker .

However, in a nutshell, you simply pick a broker based on a number of factors outlined in the aforementioned article, complete an application and submit it online or via mail or fax. You will need to determine how much help you want, and select a full-service broker, discount broker, or deep discount broker, and as you might expect, the commissions go up with increased level of services.

You will also need to decide in which investment securities you plan to invest. If you are going to invest in mutual funds, hedge funds, or bonds only, you may not even need a brokerage account. You can invest in most if not all mutual funds and hedge funds by contacting the company directly. You can invest in treasury bonds directly at http://treasurydirect. gov/ .

If you decide to invest in stocks, exchange traded funds, or stock options, you will need an online brokerage account. And of course, if you have a brokerage account, you can also trade mutual funds, exchange traded funds, and bonds in the brokerage account.

The best way to determine the fees, services, investments, etc. offered by each brokerage company is by reading a published review or survey of the companies, or you can check each company’s website directly.

As I mentioned above, once you pick a brokerage company, you need to submit an application. If you fax it or open your account online, you will still need to fund the account. You can either send them a check for your initial deposit or set up an ACH transfer between the brokerage account and a bank account. Of the two options, I would recommend you set up the ACH transfer, because it’s generally safer than sending a check through the mail, it’s often quicker, and it gives you the freedom to exchange money between the two accounts (in either direction) later.

How To Invest Online For Specific Securities

This section briefly points you in the right direction for selecting the right stocks, mutual funds, and exchange traded funds for you. These are broad topics that can fill entire books on how to invest … and does. So, rather than comprehensively discussing how to invest in these specific securities here, I will refer to appropriate web pages that will get you started. For more complete discussion of these topics, you may want to check out the recommended references in my online Info Mall. Many of the recommended resources are available for free.

You can select any of the links below to open a new window for each topic:

How to invest in Exchange Traded Funds – Coming soon

How to invest in Stocks – Coming soon

How To Invest Online – The Mechanics: Part II

Once you have selected a brokerage company and opened an online stock and options trading account, you need to learn how to read stock option prices and how to place online investment orders to buy stock options and sell stock options. Simply click the appropriate link above and learn more about each of these topics.

How To Invest Online Safely

Once you have placed your online investing order for stocks, stock options, or whatever, you need to understand how to protect yourself from major losses. This is most easily done using “Stop loss orders”. Stop Loss orders are simply an order you place to close your position if the trade moves against you by a certain amount.

For example, if you buy a stock for $100 per share, you can then place a “Stop Loss” order to sell the stock if the price falls to $90, or $90.90, or whatever price you want. Then if the stock falls to (or through) that price, the stop loss order turns into a “Market” order for immediate execution. You should understand, however, that a Stop Loss does not guarantee you will sell at the Stop Loss price.

As I said, your stop loss converts to a “Market” order which means “sell at the current market price” (actually at the current “Bid” price). If your $100 stock falls to $90.25, your $90 stop loss order stays as is, but if the stock drops immediately to $89 per share (i. e. it “gaps down” without actually trading at $90 per share), your stop loss order will convert to a market order and your stock will be sold at $89.

So, that’s the concept of a Stop Loss order, but the real question is … “At what price should you set your stop loss order?”

This is where you need a general rule of thumb … such as setting your stop loss price at 10% below your purchase price. If you have a volatile stock, you may want a 15% or lower stop price; if your stock has very low volatility, you may want to set it at 5%.

The next question is … what if your stock has risen 50% above your purchase price? Should you keep your stop loss at the original price you selected? … Here is where I would suggest you consider a “Trailing Stop Loss”.

A trailing stop loss is when you raise your stop loss as the stock price rises … and you never lower the stop loss price. For example, if you bought your stock at $100 and set a 10% stop loss order at $90 per share … and then the stock rose to $110 … then you should raise your stop loss to $99 (10% below the new $110 price). If the stock then rises to $150 per share, your 10% Trailing Stop Loss price would rise to $135 ($150 * 90% = $135). Now, if your stock drops to $137, your stop loss stays at $135. If the stock price drops below $135, your stop loss order will be executed and you will get a net profit of $35 per share.

Another way to invest safely is to diversify … that is, spread your money across multiple securities and/or multiple types of securities (e. g. stocks, bonds, mutual funds, etc.). How much you need to diversify depends on how much time you have to invest in your online investing, how much money you have, and the types of investments in which you invest.

For example, mutual funds are diversified by definition and law. A mutual fund is not allowed to put more than 5% of its money into a single stock, and it is not allowed to own more than 10% of the voting stock of any particular company. These are the legal diversification laws for mutual funds.

However, this does not mean you have adequate diversification in a single mutual fund. If the mutual fund is a “sector” fund … investing exclusively in precious metals, technical stocks, or healthcare stocks, for example … the fund will be diversified among the sector, but investing in a single sector is not truly diversified since most stocks or bonds within a single sector tend to be correlated; if one of the stocks goes down, the entire sector may go down.

Although different laws may apply, the diversification considerations for exchange traded funds are basically the same as for mutual funds.

If you invest in stocks and have relatively small amounts of money, you may want to invest in 5 different stocks each in a different industry. If you have lots of money, you may want to invest in as many as 20 different stocks. Most advisors recommend no more than about 20 stocks for the typical investor simply because it’s very difficult to adequately track that many different companies.

Finally, you may want to spread your money between mutual funds and/or exchange traded funds, stocks, bonds, and even precious metals.

In conclusion, to invest online safely, you should take measures to limit your losses using trailing stop losses and diversify your holdings so a drop in a single sector doesn’t knock your entire portfolio down.

The Final Step For Investing Safely

When you decide to invest … online or otherwise … you need to consider your entire financial picture. You should include some speculative investments to give yourself the chance of receiving great rewards, but you also need to structure your “portfolio” for safety … a backup plan for success.

To do this, you need to consider your debt situation, your income and expenses, and how to divvy up your investment money. You need to create allocation between the following investment classes that you can embrace and follow:

Speculative (penny stocks, one-sided stock options, raw land, futures, etc.)

Focused Investments (stocks. corporate bonds, royalty trusts, precious metals, option strategy trades, municipal bonds)

Diversified Investments (non-sector mutual funds and exchange traded funds, Real Estate Investment Trusts [REIT])

Loan Investments (U. S. Treasury Bonds or Notes and T-Bond funds)

Cash (savings, checking, money market, certificates of deposit [CD])

Paying down debt early

Generally speaking, you should treat these allocations like a pyramid with heavier allocations at the bottom of the above list and lighter allocations at the top. Furthermore, as “riskier” investments (those near the top) pay off greater rewards, you should siphon off some of these rewards to fund the base or foundation of your pyramid.

For example, if you use my highly profitable “insured puts ” or “insured calls ” stock options technique, you should take a percentage of your gains and pay down debt, add to cash, and/or add to income-oriented focused investments. This is how to invest safely while forcing yourself to maintain long-term benefits. An example allocation across your financial pyramid is shown below:

Speculative: 10%

Focused & Diversified Investments: 40%

T Bonds, Cash, & Paying down debt: 50%

But these are just general examples; you should adjust these allocations to match your tolerance for risk.

How To Measure Your Performance

This can be a tricky topic, but the fundamentals of measuring your investment performance are actually pretty simple in most cases. In all cases, you should measure your investment performance based on Return On Investment or “ROI”. For your cash and individual bond holdings, the Return On Investment is simply the reported interest rate, and when you pay down debt, the ROI on the amount you pre-pay (i. e. the amount you pay above the amount you are required to pay is the same as your loan’s annual interest rate (i. e. the Annual Percentage Rate [APR]).

For example, if you are required to pay $1,000 per month on a mortgage with a fixed rate of 6% and you pay $1,100 instead, you are effectively investing the extra $100 for a 6% ROI … which is often much better than other cash investments returns on investment. Now you can complicate this by factoring tax rates into your ROI calculations, but we’ll skip that for now.

When you start calculating ROI for stocks, mutual funds, and stock options, the basic equation is ROI = (Change In Value / Initial Investment). However, rather than get into the details here, I have published a complete article on this topic of calculating ROI here.

Now, there is one other way to look at performance and how you measure success besides ROI, and it can be more valuable than “ROI” especially when you consider paying off debt as an “investment”. This second measure is “absolute income”.

Using the $1,000/month 6% mortgage example quoted above, if you pre-pay, you are earning 6% “tax free” on the pre-paid amount, but more importantly … when the mortgage is paid off completely, your income effectively rises by $1,100 per month (including your pre-payment amount) since you no longer have to pay that every month. If you have a $30,000 balance left on your mortgage and paying it off frees up $1,100 per month, that’s like getting a 44% annual return … because that’s the ROI you would have to earn on $30,000 invested elsewhere to get the same “new income”.

The logic is a little contorted, I know, but think about it this way … if you had $30,000, would you rather put it in a mutual fund and hope you get a steady 10% return on investment each year … which puts $3,000 per year in your pocket … or would you rather pay off the loan and put a guaranteed extra $12,000 (or $13,200 counting the pre-pay amount) in your pocket each year? $12,000 of income off a $30,000 investment is a 44% annual ROI.

How To Invest Online Using Leverage

Now, I’m going to conclude this article with a touchy subject known as “leverage”. Leverage effectively means “using borrowed money”. If you buy stocks on “margin”, that means your online broker is loaning you money, and the brokerage company will withdraw interest from your account each month you have a margin balance. This is no different from borrowing money from a home equity line of credit and depositing it in your brokerage account … except for the fact you will likely get a lower interest rate from your home equity line of credit.

Either way, the interest is tax deductible … at least to the extent you earn income from your investments. Also, either way, you will have to pay back the loan regardless of how your investments perform. With a margin account, however, you may get a “margin call” from your broker demanding you deposit more money within three business days to pay down the margin balance if your investments drop or if the margin requirements change.

All that said, there are other ways to leverage your investments, and most experts will tell you “most people will need to use leverage to get rich through investing.”

Stock options are by definition a form of leverage. Depending on the stock option strategy, you may be using margin as well, but the very concept of buying a stock option for a small amount of money and receiving “control” of 100 shares of stock is another type of leverage. My stock option articles cover this in more detail, but here is an example of what leverage, in the form of stock options, can do for you.

If you buy 100 shares of a $100 stock, you will have invested $10,000. If that stock rises to $110 per share, you will have gained $1,000 for a “Holding Period ROI ” of 10%. However, if you bought a call option fro $500 on that same stock and the stock goes up $10 per share, your call may be worth $1,400 (allowing for some time value erosion) which would represent a 180% holding period ROI. Compare a 10% ROI versus a 180% return on investment, and you can see the power of leverage.

Of course, you need to understand that leverage is a double-edge sword; you can earn money faster, but you can also lose money faster using “leverage” money. This is why it’s imperative that you read and study your financial and investment concepts before (and after) you invest. So bookmark this site, check out my Info Mall. and come back often. I’m constantly adding new information regarding how to invest online . so keep coming back and keep learning with my free stock option training .

Bookmark InvestOnlineInfo. com and come back often for more free stock option training!

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How Stock Options Work

The following example illustrates how options contracts work. Investor A thinks that the Exxon Corporation stock will increase, but does not want to invest great amounts of money that is needed to buy 100 shares. Investor A can buy a call option contract for 100 shares of the Exxon Corporation with a strike price (or exercise price) of $35 per share. Investor N signed this contract to sell 100 shares from Exxon Corporation stock at a strike price of $35 per share. In that same period the Exxon stock was being negotiated at around $38 per share. Both investors have different points of view about what is going to happen with prices of Exxon? s shares.

Investor A thinks that prices will increase while investor N foresees that share prices will fall in a near future.

Investor N takes the risk of loss in case Exxon stock prices raise instead of falling. If Investor A exercises the option to call in the stock then Investor N will have to buy Exxon? s stocks at a higher price and give it to Investor A.

Investor N is compensated for this risk by collecting from the buyer of the contract an amount of money called Premium or Option Price. If Premium is $3 per share. Investor A will pay $300 to Investor N for the call option contract buy giving Investor A the right to buy 100 shares from Exxon stock at $35 per share before the contract? s expiration date if Exxon? s stock prices raise above $35 per share within a specified period of time before expiration date, Investor A will benefit if carries on the option.

Let? s pretend Exxon stock goes up $42 per share within a reasonable period of time, and Investor A decides to carry out the option. Under call option terms Investor A has the right to buy 100 shares of Exxon? s stocks at $35 per share. Investor A pays Investor N the amount of $3500 for 100 Exxon shares. If Investor N does not own those 100 Exxon shares he will have to buy stocks at $4200 (100 shares at $42 per share) and transfer them to Investor A.

Investor A paid a total amount of $3800. $300 for the option (Premium price) plus $3500 for the stock. Costs for Investor N ended up in $400 total loss, detailed as follows: an outlay of $4200 that was partially offset by Investors A $3500 receipt per stock plus $300 for the option contract. If on the other hand the Exxon stock price falls to $32 and keeps the price during the whole contract period, Investor A will have lost the Premium contract amount ($300). That is because the most an investor can loose when buying an option is the value of the option contract.

The advantage of a call option is that the investor has a high degree of leverage (a small amount of money $3 per share that controls a larger sum, $35 per share). The option buyer also has to benefit by selling the option if there is no increase in Premium price. Also, Investor N has some alternatives. If Investor N wants to get rid of the contract it may buy someone else? s contract.

Option? s negotiation is lightened up greatly because of the Options Clearing Corporation (OCC) who besides maintaining a liquid market place, it also keeps track of options and positions of each investor. Option buyers and writers do not negotiate directly but through the Option? s Cleariang Corporation. When an investor buys a contract the OCC acts as a broker and makes sure that contract provisions be followed. When the contract is carried out, the OCC guarantees that the option buyer receives his stocks even when the writer incurs in default on delivery.

Equally, the OCC helps buyer and writer in the process of closing out their position. When the buyer of an option contract wants to sell the contract, the OCC will cancel both entries in account of the investors. That same process is followed with writer a contract. If the writer wants out of its position, it will buy the contract which then offsets the original position.

A smart reader will immediately notice that in order for the OCC to guarantee these processes, there would have to be standardized contracts. Generally, they are launched into the market at the same time as the option in a stock, having identical terms except the strike (exercise) price. The contract period for stock options is standardized with three, six and nine months expiration dates. They have been introduced in the options exchange with longer terms called Long-term Equity Anticipation Securities (LEAPS).

LEAPS can have a 3 year life span before expiring. They have similar characteristics to the short-term option contracts but as they have a longer period to expiration they have higher Premium prices.

Reading Option Quotes Newspapers do not list every available stock option because of the great number of contracts in the market. But they do print the list of the most negotiated stock options. Consequently if you do not find a particular stock option on the newspapers listings, it does not mean that these have expired. Probably, it was not an actively negotiated option at that day.

Different web sites in the internet provide a more complete list of options, as well as information related to their negotiation.

Should CEOs No Longer Be Granted Stock Options?

Author Jim Collins talks to Steve Inskeep as part of the Morning Edition occasional series Fixes. Collins says that by making CEOs buy company stock with their own money, they will have more incentive to manage for the long term and make the types of decisions that lead to job growth.

STEVE INSKEEP, HOST:

The economy is still far from healthy, and we've been asking people for one idea that could help fix even just one small part of the economy. And we have this latest idea from author and management consultant Jim Collins. He wants to change the way that CEOs are paid. Instead of granting stock options, he says executives should have to buy company stock with their own money.

JIM COLLINS: I want executives who are willing to be aligned in their own risk profile with how well the company does over time.

INSKEEP: Collins studies what makes companies succeed in the long term. He points to IBM and its former CEO, Lou Gerstner, who took over the company in the 1990s when it was near failure.

COLLINS: He could have just said look, what I'm going to do is get rid of a bunch of people and drive the cost down, and give everybody a bunch of options, and we're just going to quickly turn this around. And we will make a whole bunch of money in the short term, but we really don't care whether this company comes back in the long term.

What he did instead was to say no, my responsibility is to get us off the operating table, but then to get us back to be a really, really strong and growing company. And all of the actions he took were focused on building for a multi-decade - not multi-quarter - but a multi-decade perspective. He said look, I do not want to just have my executives have a bunch of upside-only options, where they don't feel pain if we don't do well, but they'll do really well if the stock goes up. Y.

INSKEEP: Well, let's explain that for somebody who has never had a stock option.

INSKEEP: You're basically saying that you get an option to buy a bunch of shares of stock at some particular price, and if you drive the share price above that level - $75 a share, or whatever it is - you can make a bunch of money really quickly. But if the share price goes through the floor, you just never exercise the option; you lose nothing.

COLLINS: That's exactly right. And now imagine if instead, as Gerstner did when he came into IBM - he said look, I want my executives not just to have options, I want them to own shares outright. I want them to buy stock outright. And he expected the CEO of the company to own four times his annual compensation in stock outright. And the reason being that if we don't build this company well over time, we - individually - will also suffer. If our employees suffer, we suffer. If our shareholders suffer, we suffer.

INSKEEP: So if I'm getting stock options as an executive, the potential for me is to essentially, buy a bunch of shares very cheaply, and sell them again at a huge profit five minutes later if the company is doing well very, very briefly. You're saying that if, instead, I am just using my own money to buy a bunch of shares, I am going to be motivated for my own retirement, or whatever it is, to think about 10 years from now.

COLLINS: Ten or more. The fundamental responsibility of an executive of a company is to build a great company that has the potential to sustain its position over time, and to add jobs over time. That's a very different responsibility than saying, how can we make the most amount of money in the short term?

INSKEEP: So you are saying you want to attract a different kind of executive by requiring each executive to take a chunk of their life savings, and throw it into the company.

COLLINS: Yup. What it would say is, if you're not willing to put your own skin in the game, if you're not willing to live with the same kinds of potential costs and consequences for a failure to manage well that you're going to expose everybody else to, then you're not showing that you are truly ambitious, first and foremost, for this company doing well over time. And therefore, you don't deserve to be an executive in this company.

INSKEEP: Given your view about short-term versus long-term thinking, what do you think when you look at the news of recent months - and actually, the last several years, where corporate profits have been enormous but companies have been keeping a lot of money in the bank, and in some cases continuing to lay off workers?

COLLINS: In the case of the layoffs, we have all these different pieces of research we've done over the years looking at what separates great companies from good ones. Companies made the leap from good performance to great performance - they never made it principally by cutting a bunch of jobs. You never cut your way to a great company. It just - that's just not how they get built.

Now let's talk about the cash side - separate question. One of the things you find is that in a world that's full of uncertainty and storms and things that can hit you, you have to have the ability to absorb not just one shock but two shocks, three shocks, four shocks, 10 shocks. The companies that prevailed in those environments carried three to 10 times the normal level of cash to assets on their balance sheet. You need buffers in an uncertain world. It is supremely rational to have them. And I would argue that it is very responsible to long-term employment creation to make sure that your company can survive the uncertainty and chaos that is yet to come. We have only seen the beginning.

INSKEEP: Jim Collins, author of "Good to Great" and "Great by Choice," thanks very much.

COLLINS: You're very welcome. It's been a real pleasure.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.

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