Pro: General Information

StockOpter.com and StockOpter Pro are both professional "Equity Compensation Diversification" tools but they are VERY different.

StockOpter.com is web-based, easy to use and creates a risk analysis client deliverable that serves as a framework for having a proactive diversification discussion with equity compensation recipients.

StockOpter Pro is an Excel add-in with a full tax engine that enables advisors to model and compared goal-based diversification scenarios over a 15 year horizon.

Refer to the following PDF document for details on the differences:
   StockOpter.com Vs. StockOpter/Pro Comparison Matrix

Erin Miller   April 6, 2015  


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Currently training is limited to the following options:

1) The Users Guide (No Charge)
2) One on one assistance creating a single case ($300 Minimum).

For more information on training contact Net Worth Strategies at: 541-383-3899 or stockopter@networthstrategies.com.

Erin Miller   June 14, 2016  


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StockOpter Pro is a single user license for the current tax year (i.e. 2017). The subscription fee price is based on usage. Low usage licenses (less than 25 clients) are $995 and unlimited usage licenses are $2,495.

Volume discounts are available for quantities of 5 or more licenses purchased or renewed at the same time.

Erin Miller   June 14, 2016  


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Pro: Technical Support

StockOpter® Pro does not inherently handle stock swap exercises. However, there is a workaround to approximate this method of financing a stock option exercise.

To model a situation in StockOpter® Pro in which a client has the ability to finance option exercises via stock swaps, perform the following steps which are illustrated in the exhibits following the instructions in this white paper:

File Attachment(s):
Modeling Swaps in StockOpter Pro.pdf (56kb)

Erin Miller   June 14, 2016  


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Follow these steps to model the implications of a same-year disqualifying disposition to eliminate AMT:

1. On the BaseCase, click on Add for new ISO
2. Title the grant as Phantom – DQD ISO#X where X is the ISO number that contains exercised options
3. Enter the same grant date and expiration date as the original grant
4. Enter the original grant (exercise) price. (Note: if using in conjunction with the SWAP white paper, use the original not the revised exercise price)
5. Click Add Grant
6. In the BaseCase sheet, go to row titled, “# of vested & unexercised options,” for the Phantom grant. Enter a formula setting the cell in column B equal to the cell corresponding to the “Disqualifying disposition” in column C.
7. Enter the expected stock price for disqualification in the row titled, “Transaction stock price override.”
8. Go to the original grant that contains the options being exercised. Enter the FMV at exercise in the row titled, “Transaction stock price override.”
9. In the row titled, “# of qualified options to exercise,” enter a formula as follows: =[# of options exercised] – [cell ref corresponding to Disqualifying disposition in the Phantom Grant]
10. Perform a goal seek to set the row titled, “Alternative Minimum Tax” to zero by changing the row titled “Disqualifying disposition” for the Phantom grant.

The result will be the conversion of some of the AMT adjustment triggered by the original exercise into ordinary income in the Phantom grant.

Erin Miller   June 14, 2016  


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Description:

This work-around will enable StockOpter Pro to model the tax consequences of a disqualifying disposition that is done in the next tax year. It requires a formula change in the grant block of each affected ISO.

Steps:

  1. Un-protect the worksheet (Tools/Protection)
  2. Go to “SO Views” and select “All Rows” to display the intermediary calculations in the grant block
  3. In the year of the disqualifying disposition replace the formula in the “Capital Gains” cell with zero
  4. In the year of the disqualifying disposition change the formula in the “Ordinary income” cell as follows:
    1. Change the formula from pointing at the “Disqualifying disposition” row to point at the “# of shares to sell (qualified)” row
    2. For example, change: MAX(((IF(D8>0, D8, D$2)-$B10)*D15),0) to MAX(((IF(D8>0, D8, D$2)-$B10)*D21),0)
  5. Model the disqualifying disposition as follows:
    1. Year 1: enter the number of shares to “exercise as qualified”
    2. Year 2: enter the number of shares to “sell as qualified”
  6. The income from the sale will flow as “ordinary income” instead of an AMT adjustment thru the tax calculations
  7. Repeat from step 3 for other grants

Notes: Use caution when working with an unprotected worksheet because inadvertent formula changes can occur.

Erin Miller   June 14, 2016  


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Question: My client has an ISO grant that expires this year. Her options are currently “in the money.” She would like to exercise all the options in this grant in order to avoid letting them expire. However, she doesn’t have enough money to cover the exercise price and resulting taxes, and doesn’t want to take out a margin loan to cover those costs. As a result, she needs to make a disqualifying disposition to cover the cost of the exercise.

How can I use StockOpter/Pro to calculate the exact number of ISOs that she must disqualify to cover costs so that she can hold the remaining number and sell them later as qualified?

Answer: Disqualifying ISOs to cover is a two-part process. First, type a formula in the row “Qualified options to exercise” to calculate the number of shares to exercise and hold. Then, use the Goal Seek tool to calculate the number of shares to sell as a disqualifying disposition.

Step-by-step instructions in StockOpter® Pro

Part I - Identify Shares to Exercise

To identify the number of shares to exercise, create an Excel formula that calculates the number of qualified options to exercise.

In column C on the row “# of qualified options to exercise,” type = C11-C14.

* Note: This assumes that you want to exercise all the available options, have only one ISO, and are doing this calculation for the first year.

Part II - Calculate Number of Shares to Sell as a Disqualifying Disposition

Use “Goal Seek” to calculate the number of ISOs to disqualify in order to have enough cash to buy the stock and pay taxes on the sale.

  1. On the “SO Tools” menu click “Goal Seek.” The “Goal Seek” box displays.
  2. In the row “Total after tax cash flow from all stock option activity,” click to select the cell that corresponds to the year in which you want to sell the options. The cell location displays in the “Set cell” box.
  3. In the “To value” box type the numeral “0”.
  4. Click the “By changing” box and select the corresponding cell in the row “Disqualifying disposition.”
  5. Click OK. Goal Seek calculates the answer and displays it in cells C13 and C14.
  6. Round the number in the row “Disqualifying disposition” up to the next whole number.

In the “Totals From Activity” section at the bottom of the worksheet the row “Total after tax cash flow” should be a number equal to or greater than zero.

Erin Miller   June 14, 2016  


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To get started you will need some basic data about your client or prospect. Since the goal is to illustrate the risks of exercising and holding employee stock options, the detail of the assumptions is not critical. The key pieces of information are: estimated income over the next 15yrs, estimated itemized deductions, the client's stock option information and the assumed appreciation rate of their investment account.

Enter the income information on line 11 of the Assumptions sheet and deductions on line 25. Now, make some basic assumptions about the stock price, growth rate (dividends if applicable) and the Investment Account (rows 58-61). Finally, enter the client's grant and share information on the BaseCase. You are now ready to create a quick comparison that illustrates the results of exercising and holding compared to diversifying.

Click on the "Diversification Illustrator" icon on the tool bar. Enter a diversification rate of say, 10%. Enter a multiple of the exercise price (3x). Pay attention to the FMV of the stock relative to the client's strike price(s). The Diversify strategy will only exercise and/or sell if the FMV exceeds that multiple. Finally, select one or more price index to use for the analysis. "Static 8% Growth +or- 40% Volatility" is good because it illustrates the risk inherent in a single stock position. Click OK and let StockOpter® start crunching the numbers.

When the program finishes you will be looking a chart that has one or more sets of horizontal bars. The final piece is interpreting this one-page analysis for your client or prospect. What is going on in this report is quite simple. For each index selected, StockOpter/Pro will compare two strategies. One strategy (ALAP) is designed to represent an "exercise and hold forever" approach. This is the blue bar. The other strategy (Diversify) is designed to demonstrate how a systematic diversification plan, roughly approximate to an SEC 10b5-1 plan, would perform in relation to the ALAP approach of waiting until the options are about to expire and then exercising and selling to cover costs and taxes. This is the green bar.

You will likely be able to illustrate that a systematic diversification plan can produce similar, if not better, results to the ALAP strategy. The key difference is the significantly lower risk inherent to a diversification plan. This process can be an excellent way to win new clients and can be the first step toward garnering more assets. For more information on how the Diversification Illustrator works, read about it in the StockOpter® User's Guide.

Erin Miller   June 14, 2016  


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Many clients currently hold previously exercised Incentive Stock Option (ISO) shares. The exercise of the options behind these shares may have caused your client to pay alternative minimum tax in a prior year. In most cases, this will lead to the client having a minimum tax credit carryforward at the inception of your option planning. In addition, due to the recent stock market difficulties, your client may also have a capital loss carryforward that could be utilized.

Described below are instructions on how to efficiently utilize StockOpter® to take advantage of those carryforwards for your client.

Utilizing the Minimum Tax Credit Carryforward

If your client has a minimum tax credit carryforward (MTC), it can be utilized to the extent that their regular income tax liability exceeds their tentative minimum tax (TMT) liability. If that difference is not great enough to fully utilize the MTC, then there are two ways to increase the difference. The first is to increase the client’s ordinary income. This would cause their regular income tax to grow at a faster rate than their TMT, thus increasing the spread. However, using this method will cause the current net tax burden to increase substantially overall, which may not be the best result for the client. The second method is to sell ISO shares that have met the holding periods for tax preferential treatment. Since ISO shares generally have a higher AMT cost basis than regular tax cost basis, this could lead to a rapid increase in the necessary spread for MTC utilization without a substantial increase in the overall tax burden. The steps below describe how to quickly figure out how many ISO shares need to be sold to utilize the MTC.

  1. Utilize a very simple formula to calculate the current difference between regular income tax and TMT. This formula can be entered in the cell just below the regular income tax. If regular tax is computed in cell C50 and TMT is in cell C67, then you would enter a formula in cell C51 the reads =C50-C67.
  2. If the result of this calculation is less than the clients MTC, then use goal seek to figure out how many ISO shares need to be sold to increase the spread to the amount of your MTC.
  3. Check the resulting sale strategy to verify that more shares were not sold out of that lot than were held. If so, sell all shares in that lot and go to the next available lot and re-do the goal seek.

Keep in mind that AMT capital losses are restricted like regular capital losses. Therefore, beware that if the ISO shares that you are selling have depreciated substantially from when they were exercised, the client may have a substantial built-in AMT capital loss. This could limit the amount of MTC that can be utilized.

Utilizing Capital Loss Carryforwards

If the client has substantial capital loss carryforwards from a prior year but is holding company shares with built-in capital gains, StockOpter® will efficiently help you determine how many shares they need to sell to utilize the capital loss carryforward. The effect of this of course is the ability to liquidate shares with no additional tax burden other than the utilization of the capital loss carryforward. The steps below describe how to quickly figure out how many shares need to be sold to utilize the capital loss carryforward.

  1. Select the cell in which the Net long-term capital gain (loss) is calculated.
  2. Select goal seek and set the value in that cell to –2999 by changing the number of shares to sell out of the desired capital gain lot.
  3. Check the resulting sale strategy to verify that more shares were not sold out of that lot than were held. If so, sell all shares in that lot and go to the next available lot and re-do the goal seek.

Erin Miller   June 14, 2016  


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Pro: Known Issues

If your system is using Excel 2010 to run StockOpter Pro, please note the following: 

Microsoft released a security patch (KB3178690) on March 14, 2017 that causes Excel 2010 to crash or hang up when spreadsheets are recalculated. This bug severely effects the functionality of StockOpter Pro.  Microsoft has released a patch (KB3191855) to fix this issue. You will need to check your Windows updates to see if the above referenced KB3178690 was installed, if so you will need to download the patch KB3191855 by clicking on this link:  

https://support.microsoft.com/en-us/help/3191855/march-28-2017-update-for-excel-2010-kb3191855

 If you have any questions or need assistance with this issue, please email or give us a call at 541-383-3899.

 

Bill Dillhoefer   April 13, 2017  


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Certain Windows and Office configurations cause the "Help" function within StockOpter Pro to not function.  It is unknown why this happens and to resolve the problem requires assistance from your IT resources.  In the event that this problem occurs on your computer and can't be resolved internally, click the following link for a browser version of the StockOpter Pro "Help" information: https://www.stockopter.com/soprohelp/

Bill Dillhoefer   September 11, 2017  


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