Executive compensation often comprises stock options. These options have vesting periods, and may not be exercised for a while. Which of the following actions could help executives mitigate the risk of their stock option grants?
A) Short call options on a broad market index.
B) Short call options on a competitor's stock that is highly correlated with the company's own stock.
C) Short futures on a broad market index.
D) All of the above.

Question

Executive compensation often comprises stock options. These options have vesting periods, and may not be exercised for a while. Which of the following actions could help executives mitigate the risk of their stock option grants? 
A) Short call options on a broad market index.
B) Short call options on a competitor's stock that is highly correlated with the company's own stock.
C) Short futures on a broad market index.
D) All of the above.

Quizplus · Accepted Answer

Shorting call options on a broad market index or a competitor's stock, or shorting futures on a broad market index, can help hedge against the risk of a decline in the company's stock price, thereby protecting the value of the executive's stock options.

Executive Compensation Often Comprises Stock Options