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Unless you're in an egregiously unfavorable options contract (do these even exist?), an options contract should have the underlying number of shares it pays out
by consz 9y ago
Unless you're in an egregiously unfavorable options contract (do these even exist?), an options contract should have the underlying number of shares it pays out adjusted in such a way that a stock split has no effect on your payout in USD.
- Spivak 9y agoThis is true for stock splits, but not necessarily true of dilution. It's very rare for non-CEO's to receive dilution protection in their contracts.
- consz 9y agoIs this actually true? If so, why would anyone ever value an options package at anything above zero (assuming they are non-CEOs)?
- Spivak 9y agoBecause when companies dilute stock they typically execute it so that investors don't lose any money. Their percentage stake in the company goes down, but since the company is raising money at a higher valuation it balances out. This trick doesn't work when dilution results from someone calling options but that's pretty standard and usually doesn't have much impact.
- consz 9y agoSo it sounds like the only insurance plan against being diluted to zero is "I hope they don't fuck me" -- which sounds like a really, really bad insurance plan. I still remain unconvinced that they should be valued above zero.
- harryh 9y agoThe execution that Spivak described that causes the investors to not lose money also causes the employees to not lose money. If the value of a company goes up (because it is successful) your share price will continue to rise even if your shares get diluted due to additional financing. There is no "I hope they don't fuck me" involved.