Articles

What Dilemma You May Face When Your Stock Options Vest

by Adolf Roberts ESO Fund
Employee Stock Options (ESO) always have several uncertainties associated with them, that, in the lure of the financial rewards, employees often tend to overlook them. These factors need to be taken well into account, so that you know what and how you are going to proceed further.

One such predicament comes with vested options, as you can get confused about what to do – 
Leave the company before the vesting company, and forfeit a good opportunity for financial gain
Or
Stay and risk having to see the company stock prices falling

However, most people go for the second option and wait until the vesting period. But what next when the options vest? Do exercise stock options immediately or wait a bit? There are a lot of dilemmas that come once the options vest. We, through this article try to explain these complicated situations:

Do You Want To Hold Company Stock?

During the vesting period, you have no power to exercise. So, it all comes to your decision making ability when the options vest. It is at this time, when you need to analyze and what you want to do with your options. In all, you have two choices to make:

  • Exercise your option and hold the stock. Do this, if you believe (and have statistical data to support this belief) that you will profit from the stocks in the near future.
  • Exercise and sell your stock, and take your money. Go for this choice only when you see the option as compensation only and have no interest in waiting further.

How You Need To Exercise Stock Options?

For exercising your options, you have two ways – cash exercise and cashless exercise. Sometimes, exercising with cash may result in a large cash call, which may not be possible. It is here, that cashless exercise is beneficial. You need to exercise and sell a portion of your shares to cover for the cost of all the shares, and possibly the taxes. This way, you will end up with fewer shares.

If you have enough money to pay for exercising and cover your impending tax bills at once, a cash exercise can be the choice, else go for the cashless exercise.

How Much Wealth You Have Tied Up In The Company Stock?

As a general rule, your employee stock option should account for 10-15% of your wealth. And you should not hold too much stock of a single company, else you risk a great financial loss if the company takes a turn for the worse. The best thing to consider in such a condition is diversifying your investments.

These are some of the questions you need to ask, before you take a decision related to ESO exercising. You must also consult an expert, who can provide you with in-depth guidance on how to proceed regarding such financial decisions.


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About Adolf Roberts Junior   ESO Fund

0 connections, 0 recommendations, 4 honor points.
Joined APSense since, August 1st, 2017, From San Mateo, CA, United States.

Created on Sep 5th 2017 01:36. Viewed 548 times.

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