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background: i am 35, started working full-time about 18 months ago (before that I was a SAHM to my 2 young kids). When i was hired, i remember seeing something about being granted stock options..but i didn't pay too much attention (where's the bag over head smiley?). i am an engineer - tech geek, but embarrassingly, i know basically NOTHING about the financial world and basically would defer everything to my DH, who is very very conservative/low-risk taking when it comes to these things. his attitude has always been, don't go crazy with the stocks, ride things out as much as possible, think of long-term, etc.
well, the other day i go to my fidelity acct and notice that i have to accept the grant of the stocks i was given back when i was hired (i guess i have never done it..i never log in to it, dh handles a lot of it..embarrassing, yes i know). i do that, and realize that when i had been hired, i had been granted several thousand shares (almost 10,000), about 1/4 of which have already vested (i think the schedule is that 25% vest each year). the crazy thing is - i notice that the company stock price has more than DOUBLED since i was hired. If i sold immediately (cashless exercise) all the shares that have vested, i would get about $22k (minus taxes of course, so i guess $15k?). This is a ton of money for me...my base salary is $100k for reference. While that may sound like a lot, I am currently the only breadwinner. With the mortgage, health insurance, car payment, and daycare for 2 kids...there is not much left. We have liquid savings which we are dipping into a bit every month because my salary cannot cover it all. My DH will start working again in 4 months, where we'll much better off, but for the time being, it would be nice to have the extra $$$ (I would put it to paying off the car probably).
So, it boils down to the conundrum...sell these shares now (or just a portion maybe?) and cash in or wait longer hoping the price will eventually go up even more? On one hand, i'd hate to wait and then seek stock tank (though i technically wouldn't be really losing any money). OTOH, it would be nice to have extra $$$ right now. i would likely use it all to pay off the car so we woudln't have the monthly payments anymore. About a month or so ago the company announced a merger and that's part of the reason it has gone up a bit i think (though it has been going up steadily before that) . i have a feeling it is going to keep going up but what do i know.
sorry if this is somewhat disjointed and semi-rambling. I know there is no way to know the real answer, it seems like such a gamble..but could use some perspectives I am just sort of wigged out how i wake up one day and find out i could cash in something close to $20k since $$ is tight right now
You need to go to you HR office first and find out if you can even do this.
Being devil's advocate - There may be a clause that says you can only sell back to the company - at a discount.
AND - if you do eventually sell them, you'll owe taxes on them.
If it was me, I'd find other expense to cut before I sold this so quickly after being hired.
oh, i know i'd owe taxes on this..that's the downside of selling immediately...pretty much a 1/3 of it would taken out. i guess the better way to do do it would be to buy them, then wait at least a year and then it would only be capital gains tax of 15%. ideally that is what i'd do, but 1) there is the risk the stock goes down in that time and 2) i'd have to put money to buy them upfront, which i'm not really willing to do at this point. in the future though (in several years) i will likely do that.
and i'm not aware of any restrictions....i've been looking over the PPT company's stock programs and it doesn't say anything about only selling back to the company. and just curious, why would HR office not allow this sort of thing... do you mean they woudn't allow selling of that many so soon after being hired? Per the schedule, it just says new hire stock options vest 25% after 1st year, then 25% following year, and expire after 10 years. when i go to Fidelity and try to put in an order, it does allow it... I figure the vesting period prevents employees from selling so quickly, no?
and past few months we have cut pretty much everything within reason (eating out, swim lessons, etc)...sad as it is, there is literally no way my salary will cover our basic monthly expenses. i think the killer is that i am paying for 2 kids FT daycare too which is literally a second mortgage. we do have about $40k in liquid savings, and my dh does have another job lined up starting in the fall and the salary will be somewhat close to mine so it's not like we're in dire straits. but, we would like to pay off the car, buy a new house in a couple years (which would be in a more expensive area) and so having extra money right now would be very helpful.
Once vested you should be able to exercise those shares. Most of my previous employers did at 25% the 1st year, and then monthly vesting after that. No restriction on selling vested shares.
Do you actually have the money to buy and hold the share for a year? Can you afford to loose that money in the immediate future if the stock tanks?
I have had co-workers who got burned doing it. I also had co-workers who kick themselves for not holding stocks long enough. They treated it as lost money....with a lot of regrets, which seem to stress them out. I always treated it as bonus money, once exercise its DONE, no regrets.
If I were you, I would sell just enough of the vested shares to make it more financially comfortable. You don't have to exercise all your vested share at once.
An over simplification, but Stock Options are an option to purchase company stock at a specific price or you are given a certain amount of shares.
The value of either depends on when and if the stock becomes of any value.
Example 1. You are given the option of purchasing say 10K shares at $5 per share. Company gets bought out or goes public at say $10 per share. You purchase your 10K shares for $50K (your option price) and you sell your 10K shares for $10 per share ($100K), you made $50K with no outlay.
Example 2. You are given 10K shares. Company gets bought out or goes public at say $10 per share and you sell for $10 per share, you made $100K with no outlay.
As I said, an over simplification. By the way, I was formerly in the high tech business. I have a draw full of stock options. One day I will wall paper a room with then as they are worth less any wall paper I can buy.
Want a real life story? I had an option of 20K shares at $8 per share ($160K). We were bought out at $20 per share by a publically traded company. This meant my $160K was worth $400K or $240K in my pocket but the deal was options could not be exercised (cashed in) for one year. In that one year the $20 per share price fell to $6 per share. I had 30 days to exercise my options. This meant buy at $160K and sell for $120K meaning I would lose $40K. I walked away from (did not exercise) the options. They are in my draw to this day........LOL
I agree with Johngolf. The stock options I was granted when I was hired to my last company were not FREE. They were granted at the strike price of the time I was hired. Basically it meant I ultimately payed $5 for a stock that I sold for $19. So I really only made $14 a share minus the taxes.
Keeping those things in mind. As long as you are up, nobody will ever think you were dumb to sell. If you could use the money, then just sell what you're vested into. It sounds like you will still have 75% left to become vested into anyway. Sure, it will suck if the shares do spike up soon and you're out that extra money. But it will suck way more if the stock plummets and you're out all of the money all together.
Sounds like the stock options that you didn't even know you had ... are now burning a hole in your pocket. Instead of immediately cashing-out of everything, why not find out what the requirements and options are ... and then, think out your investment/spending plan. True, you can pay off some bills and eliminate some of the immediate pressure, but, what about the conditions that made things financially tight for you? Unless you address that situation, it will likely only happen again... but, then, you will have no more stock options.
The people who get ahead and stay ahead generally save and live within their means, rather than immediately spending whatever they have. You are making a decent salary in a good profession with a company that obviously thinks highly of you. Perhaps it's time to look at the bigger picture and think beyond your immediate circumstances (and stock options).
Not sure if it's allowed but can you short your company's stock?
That way, if it goes down, you make money. If it goes up, you exercise your stock options to cover your shorts.
Sounds a bit shady but it's a good hedge (in theory) in the hopefully unlikely scenario your company goes underwater.. in that situation, you'd be without a job AND left with worthless stock options.
We did this last year. Make sure that you can exercise at any time, my husband falls under insider trading regulations so there was a window every quarter where we were allowed to sell.
The other thing I wanted to mention is that company stock options are taxed as ordinary income, not capital gains.
The option game can be great (my parents retired at 51 on theirs) or it can be terrible (my in laws went from $20 to $2). I would advise not getting rid of all of them at once, we are exercising a few a year, hoping to finance college for our kids with ours.
I don't have any specific advice on your stock options, I was more struck that you make 100k a year and still need to dip into your savings to make ends meet. I do see you live in Los Angeles, but still.
What does your husband do, and why is he out of work? If he is out of work long-term, why are the kids still in daycare? If his work is seasonal, then there are ways to budget for that where you don't get caught draining your savings account every year.
Selling/not selling stock isn't going to fix your root problem, that you spend more than you make.
Sorry, not what you asked but this is personal finance forum after all!
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