Lunch, Rankings, and the Risk of Inertia
At a recent casual weekday lunch at Bridgewater Advisors, my coworkers and I were flipping through the 2026 edition of Crain’s The Book, which offers a compelling look at the state of business in New York and the talented professionals, innovative firms, and storied nonprofits who are shaping our economy here and across the world.
For the organizations and leaders featured in the pages, success is often measured by the trajectory of a ticker symbol or the valuation of a late-stage funding round. For the C-suite executives, high-earning partners, and key innovators driving these New York institutions, that success is frequently codified in Employee Stock Options (ESOs).
However, in a market as sophisticated and volatile as New York’s, the greatest risk to personal wealth isn’t just a market downturn—it is the inertia of success. Many professionals hold their options indefinitely, assuming that if the company continues to grow, their options will continue to provide the same high-octane returns.
But the math tells a different story. As your firm climbs the Crain’s rankings, the strategic value of your options actually changes. To manage wealth at this level, you must understand the “Efficiency Peak”—the point where the reward for holding an option diminishes over time.
The Power and Peril of Leverage
The primary draw of a stock option is leverage. Unlike owning a share of stock outright, an option allows you to participate in the price appreciation of an underlying asset with significantly less capital at risk, at least initially.
As the price of the underlying stock increases, the value of the option to buy that stock increases at a disproportionately higher rate. This “spread” is the engine of executive wealth creation. Consider a common scenario for a leader at a top-tier firm: you hold 10,000 options with a strike price of $80 and a current market value of $100.
10,000 x ($100 – $80) = $200,000
At this stage, the leverage is potent. If the stock price moves up just 10% to $110, the value of your options jumps to $300,000—a 50% gain. This 5:1 leverage ratio is why options are the crown jewel of executive compensation.
The Law of Diminishing Returns
The trap for many high-achieving professionals is the assumption that this 5:1 return ratio is a permanent feature of the option. It is not. As the stock price rises further away from your strike price, the “option” begins to behave more like the “stock.” The leverage begins to evaporate.
Consider the trajectory as your company continues its growth:
| Stock Price | % Change in Stock | Option Value | % Change in Option Value |
|---|---|---|---|
| $100.00 | — | $200,000 | — |
| $110.00 | 10% | $300,000 | 50.0% |
| $121.00 | 10% | $410,000 | 36.7% |
| $133.10 | 10% | $531,000 | 29.5% |
| $146.41 | 10% | $664,100 | 25.1% |
| $161.05 | 10% | $810,510 | 22.0% |
| $177.16 | 10% | $971,561 | 19.9% |
| $194.87 | 10% | $1,148,717 | 18.2% |
| $214.36 | 10% | $1,343,589 | 17.0% |
By the time the stock has doubled, a 10% move in the share price yields a 17% move in the option value. You are still seeing gains, but the marginal utility of the leverage has plummeted. You are taking on the full volatility of a high-priced stock but without the high-octane multiplier that justified the risk in the first place.
The Downside Stress Test
For partners in “Big Law” or accounting firms who advise on risk, or CEOs managing public company balance sheets, the following table is the most critical. It illustrates what happens when a “darling” stock faces a market correction.
If you hold those same options when the stock is at $146.41, the leverage that was once your friend becomes a predatory force on the downside:
| Stock Price | % Change in Stock | Option Value | % Change in Option Value |
|---|---|---|---|
| $77.81 | -10% | — | -100.0% |
| $86.45 | -10% | $64,536 | -59.8% |
| $96.06 | -10% | $160,596 | -39.9% |
| $106.73 | -10% | $267,329 | -30.7% |
| $118.59 | -10% | $385,921 | -25.5% |
| $131.77 | -10% | $517,690 | -22.0% |
| $146.41 | 0% | $664,100 | 0.0% |
| $161.05 | 10% | $810,510 | 22.0% |
| $177.16 | 10% | $971,561 | 19.9% |
| $194.87 | 10% | $1,148,717 | 18.2% |
| $214.36 | 10% | $1,343,589 | 17.0% |
A correction that trims 30-40% off a stock’s price—a common occurrence in the tech and biotech sectors listed in Crain’s—can effectively wipe out 90% of your option’s value.
Identifying Your “Sweet Spot”
At Bridgewater Advisors, we work with individual professionals to identify their personal “Efficiency Peak.” This is the point where the upside potential is decreasing relative to the risk, and the downside potential is accelerating.
Strategic exercise and sell decisions shouldn’t be based on “gut feelings” about the market. They should be based on three pillar considerations:
- Concentration Risk: For many leaders, their salary, bonus, and options are all tied to the same company. If the company falters, their entire financial ecosystem is compromised.
- Tax Sensitivity: In a high-tax jurisdiction like New York City, the timing of an exercise—especially regarding Incentive Stock Options (ISOs) vs. Non-Qualified Stock Options (NQSOs)—can result in a 20% difference in net take-home pay.
- Opportunity Cost: Could the capital “locked” in the spread of your options be working more efficiently in a diversified portfolio, or perhaps in New York’s competitive real estate market?
The Path Forward
There is no standard correct answer to this issue. The price at which you decide to exercise your employee stock options is set by individual considerations and can be tough to gauge. But understanding how to interpret the different factors, such as the power of leverage, can help you make an informed decision.
As your firm’s profile grows, your equity strategy must evolve from simple accumulation to proactive management. The leverage that built your wealth is a tool with an expiration date. Knowing when to trade that tool for the security of a diversified portfolio is the hallmark of a self-aware executive.
Do you have any concerns regarding your current option grants?
Contact the Bridgewater Advisors team today. We’re happy to answer your questions or strategize on how to model your specific strike prices against your long-term liquidity goals.
By Ryan Wilkens with Gabe Bryan and David Shaw