What does it usually mean for a company when directors, officers start exercising stock options & sell them?

Question

Don't know if I worded correctly but the article I read said they've exercised options for shares of common stock and sold them in the same day. Didn't know if this is a sign of the company going private or what. Thanks!

Answer 1

1. The options are about to expire, and they will become worthless unless they exercise them.

2. The options are at a high price, and they don't have the money to exercise them, so they sell them instead.

3. They need the money, the stock is at a high price, so they exercise the options, which is probably to buy the stock at a low price, and then sell the stock at the much higher market price.

4. They need the tax credit, the stock is at a low price, so they exercise the options, to buy the stock at a high price, and then sell the stock at a much lower market price, and lose money, but gain a tax deduction. (Not likely).

Answer 2

It just means that you are 'activating' the right to either buy or sell a set number of shares of stock of the company that granted you the options. In your company's case, the officers are exercising their right under the option to buy the stock for a certain price. Most likely the price is lower than what the current price is. Those officers buy the stock usually from the corporate treasury (thus the company gets cash in the deal). The officers usually turn around and sell the stock immediately in the open market and pocket the gain.

Answer 3

There could be many reasons, like they need to pay their mortgage!

However it is usually considered negative if the senior managers of a business sell stock in their company (after all they are likely to know the prospects of the business best).

Answer 4

David,

It means that the company is nearly broke and they are cashing out quick ahead of bad accounting reports !