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It is common for a shareholder of options to wish to leverage the options and gain immediate liquidity. Now optionholders who would be converting their options to either freely trading or restricted shares can benefit from a stock loan to gain leverage and liquidity without having to use any of their own funds up front to convert the options prior to obtaining a stock loan.
Consider the following scenario:
A corporate officer (insider) holding 200,000 options of XYZ wishes to borrow against his shares. |
The options he is holding have a strike price of $4.00, and the current price per share is $17.00, which has been slowly declining in a bear market. |
The stock loan lender would advance the holder of the options the neccesary capital to convert the options into shares which in this case would become restricted due to the insider status of the shareholder. |
The lender would then create a bona fide stock loan against those restricted shares. For this example, we will use an LTV of 75%, which would result in a loan amount of $2.55MM |
The capital advanced to convert the options ($800K) would be deducted from the overall loan amount, which in this case would result in a net loan amount of $1.7MM to the shareholder, without any funds having had to come out of pocket in advance. |
For more information about a stock loan, please contact our office.
For an online quote request, please use the short form on the right side of this page.
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