[knowtherules]

Why would anyone exercise and hold an option. Especially considering they are granted as a form of direct compensation or bonus? It seems that all your potential tax liabilities and margin headaches go away when you flip an option. If you want to repurchase shares of your company's stock, do it with the proceeds of the option flip. No?

[wtc911]

You hit it on the head. Only a fool or one who is listening to bad or no advice exercises and holds. The dangers are too real....

A boatload of Silicon Valley and dot-com people were granted options with a strike price in the teens, or lower. They exercised the options in the eighty dollar plus range but held on to the stock. When it came time to pay uncle the price had dropped to the forty dollar level, or lower...but the tax due was set on the eighty dollar price. Many out there lost everything in order to satisfy the IRS. They should have flipped in totum or at least enough to pay the tax. This happened well before any current issues.

[ken5050]

Exactly my point..the IRC forces you to sell, and repurchase rather than hold for the long term. And of course, there are those stupid rules on "wash sales" as an added complication

[SauronOfMordor]

Why would anyone exercise and hold an option. Especially considering they are granted as a form of direct compensation or bonus?

Mostly, they don't. You can see insider trade activity for (for example) IBM on yahoo. If you scroll down, you'll notice that when a person does an "option exercise", it's usually coupled with a sale the same day