Whether the stock options are a good sign or not d
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Posted On: 06/28/2020 8:08:14 AM
Whether the stock options are a good sign or not depends on whether the exercise will be cashless or not, and whether the stock is sold immediately or held long-term.
We had a discussion about this yesterday and here are my updated thoughts.
They are non-qualified options, as opposed to incentive stock options, so any profit taken at the time they are exercised is treated as regular income.
If the person awarded the options wants to hold the stock long-term and decides to pay the exercise price out of pocket, it would be best for the price at exercise to be close to the exercise price while still being in the money. The profit at exercise would be small and the holder would have all his or her shares to eventually sell at a lower long-term capital gains rate. So scenario a lower price while still in the money is favorable.
But with a cashless exercise, a higher share price means more shares left over, either to sell or hold, after the price of exercising the shares is deducted.
An out of pocket exercise and immediate sale would benefit from a higher share price obviously also.
We had a discussion about this yesterday and here are my updated thoughts.
They are non-qualified options, as opposed to incentive stock options, so any profit taken at the time they are exercised is treated as regular income.
If the person awarded the options wants to hold the stock long-term and decides to pay the exercise price out of pocket, it would be best for the price at exercise to be close to the exercise price while still being in the money. The profit at exercise would be small and the holder would have all his or her shares to eventually sell at a lower long-term capital gains rate. So scenario a lower price while still in the money is favorable.
But with a cashless exercise, a higher share price means more shares left over, either to sell or hold, after the price of exercising the shares is deducted.
An out of pocket exercise and immediate sale would benefit from a higher share price obviously also.
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