Planit:Employee Stock Options

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There is more than one way to learn about PlanPlus Planit. Check out our other Training options, from structured tracks around planning types, to self-serve, mix-and-match topics. In this Video you will Learn... How can I calculate and include my client's potential gain from their Stock Options? • Stock Option account type • Edit or add asset as option • Option details data entry • Black Scholes and Constant Growth • Understanding the Option Values Keep on Track! Continue training on... Investment Management Modular Planning Life Planning Integrated Planning Why You Should Use Planit Assets and Liabilities Screen Other Related Topics Stock Option Report Default Revenues Add an Asset General Assumptions Add an Account

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Employee Stock Options

Employee stock options are a feature in PlanPlus Planit that allows stock options to be added to client account, valued and then flow through retirement calculations just as any standard asset or income stream. The Employee Stock Option feature also has the capability to generate a report summarizing the client’s stock option holdings and providing guidance on the preferred time to exercise based on PlanPlus in-house metric, Potential Value Capture.

1. Go to the Asset and Liabilities screen and click add ‘New Account’.

2. You will be re-directed to the Account Detail screen. Change the description.

3. Change the Account Type to Business/Other to expose Stock Option.

4. Change the Regulatory Type to Stock Option.

5. Change any other settings appropriately and Click ‘Save’.

6. Back to the Asset & Liabilities screen, click the plus box to expand the account to expose the default stock option that has been added to the account.

7. Click ‘Edit’

8. On the Details Asset & Liabilities screen enter a new description.

9. Ensure that you have entered the appropriate number of units of the underlying asset in the stock option contract.

10. If you would like a pension record created check ‘Create/Update Pension’.

11. Enter the option parameters into the form.

• Expiration Date: The day that the option contract expires. Defaults to today.
• Grant Date: The day that the option contract was issued. Defaults to today, not mandatory.
• Vesting Date: If there is a vesting period given in the contract, where the option cannot be exercised until a certain day has passed, enter it here. Not mandatory.
• Current Stock Price: The price of the underlying stock today.
• Strike Price: The strike price of the option.
• Risk Free Rate: The risk free rate used in the models to derive the options values. This is not editable here, but can be changed on the Planning Assumptions screen.
• Value By: Constant Growth Assumption or Black-Scholes Model.
• Growth Rate: If the Constant Growth Assumptionis selected the Growth Rate is used in the model. The model assumes the stock price will grow at that constant annual rate.
• Stock Volatility: This is the parameter used when the 1997 Nobel Prize winning Black-Scholes Model is selected. It is the underlying annual risk or standard deviation of stock price returns. Rather than assuming the stock price will grow at a constant rate as in the Constant Growth model, Black-Scholes considers the full range of terminal stock prices to arrive at a value.

12. Click ‘Calculate’ to value the stock option.

• Exercised Today: This is the capital gain you would receive if you exercised the option today.
• PV Held to Expiration: This is the estimated present value of the capital gain you would receive if the option was held to the expiration date. This value is determined by the selected model.
• Potential Value Capture: This metric was developed by PlanPlus to determine an appropriate time to execute the option. It is the percentage of the total potential value of the option you will capture if you exercise at a given point in time. It is measured by taking the intrinsic value of the option at a given time and dividing by the estimated 'held to expiration value' of the option. Ignoring individual circumstance and industry cycles, options will theoretically provide the largest gain by exercising close to expiration. If an option must be exercised to provide a cash flow, most often, the option with the highest Potential Value Capture is the optimal choice.
• Value at Expiration: This is the theoretical capital gain you will receive from executing the option at the expiration date.

13. Click ‘Save’ once you are finished entering the option parameters.

14. To add another option contract to the account, click ‘New Asset’ and you will be taken to the Product Selection screen.

15. Select ‘Add Custom’ and follow steps 8 through 13.

16. Finally, to generate the Stock Option Report, click the ‘Report’ button.

Example of the Employee Stock Option Report