![]() Tip: Consult with a financial professional to ensure that your investments are appropriately diversified and read Viewpoints on : The guide to diversification Moreover, when that company is also your employer, your financial wellbeing is already highly concentrated in the fortunes of that company in the form of your job, your paycheck, and your benefits, and possibly even your retirement savings. Why? If your investments are highly concentrated in a single stock, rather than in a diversified portfolio, you may be exposed to excess volatility, based on that one company. At the same time, you should consider whether you have too much of your personal wealth tied to a single company's performance. Key question: How much of your portfolio would you be comfortable continuing to hold onto if the stock price of your company stock was to pull back unexpectedly?Įarning compensation in the form of company stock can be highly lucrative, especially when you work for a company whose stock price has been rising for a long time. Mistake #5: Concentrating too much of your wealth in company stock Will you be in the same tax bracket, or a higher or lower one, when you are ready to exercise your options?.Check with your employer about any restricted windows (when you are not permitted to sell) or other restrictions. If you are within 120 days of expiration, it may be time to act, to avoid the risk of letting the options expire.How much time remains until the stock option expires?. ![]() What are your expectations for the stock price and the stock market in general?.However, if the stock price rebounds, the option could return to in the money status, so it is important to be mindful of the details and your company stock price.Ĭonsider these factors when choosing the right time and optimum price to exercise your stock options: Underwater options don’t have current intrinsic value, and it wouldn't make sense to exercise an underwater option, because you could acquire those shares in the open market at a lower price. If, however, the stock price in this example fell to $20 a share, your option would be "underwater." An option is underwater if the current stock price is lower than the strike price. If you exercised them and immediately sold the shares at $35, you'd enjoy a pretax profit of $10,000. If the stock is currently trading at $35 a share, your options would be $10 a share in the money. Say, hypothetically, you have the option to buy 1,000 shares of your employer's stock at $25 a share. Typically, there is a vesting period of 3 to 4 years, and you may have up to 10 years in which to exercise your options to buy the stock.Ī stock option is considered "in the money" when the underlying stock is trading above the strike price. Mistake #4: Not knowing the "in the money" factors affecting option valueĪ stock option grant provides an opportunity to buy a predetermined number of shares of your company stock at a pre-established price, known as the exercise, grant, or strike price.
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