This paper investigates a market-valuation-based hypothesis for employee stock options (ESOs). It examines how market valuation has affected the decision to grant ESOs, the amount of options granted, and the distribution of options among executives and rank-and-file employees. I find strong empirical evidence that firms with high market valuation and high probability of future overvaluation are more likely to adopt ESOs and grant more options to their employees. Furthermore, when top executives perceive the current market valuation is high, they grant a smaller portion of options to themselves relative to rank-and-file employees. All these results are consistent with the theoretical predictions from the model of Zhang (2002), which argues that ESOs can be used as a method to sell overvalued equity.