Ask HN: Employees who exersised stock options: how did it go?

A stock option is a contract that entitles the holder of the option to either buy or sell stock at a price specified at the time of the contracts creation (this is the “strike price”). The price can be anything. The value of the option is, very roughly speaking, the difference between the current price (“spot price”) and the strike price. The action of using your contract to actually do the buying or selling of shares is called “exercising” the option, and it “uses up” the contract. Each contract is for 100 shares (a “round lot”). When exercising your option and then buying or selling the shares immediately at the strike price would make you money, the option is said to be “in the money”. If not, the option is “out of the money”.

The parent comment is noting that their options are out of the money, so they’re worthless. No point in exercising.

Options are highly complicated financial instrument though, so this is a very rough explanation. This is not financial advice.

Meta: what’s with all the employee stock option submissions recently? I see like four in the past two days. Is it because of the clump of major tech IPOs?

> I don’t want thousands of dollars in my investments riding on the success of one single company

Myself as well. For the private companies where I had options, most never worked out as being worth anything so not acting on them was the actual money-saving move. For the public companies, act on them if they're worth something when they vest and take the profit over to a mutual fund; I have had some options vest at 2x the current stock price making them useless, so you just play it vesting date by vesting date and hope for some profit on each chunk.

In the .COM bubble, many, many employees got crushed by exercising and holding options that were in the money when they exercised. 'Accountants and politicians were inundated with horror stories' [0]. The crushing happened when the stock price subsequently crashed below what their option price was. That circumstance meant they were liable to pay tax on the capital gain from exercising, but, did not have enough equity in the shares to cover the tax liability.

Generally, only exercise if the shares are in the money and 1) you are immediately going to sell or 2) the options are expiring. If you're going to exercise and hold, sell enough to cover your tax liability. See an accountant if the amounts are 'large' relative to your financial situation. If they are expiring and in the money and the company is private, talk to your HR department about selling enough shares back to the company to cover the tax liability. Seek professional advice if the amount is material for you.

Schwab has some good common-sense advice[1]

[0] https://www.chicagotribune.com/sns-tech-taxes-story.html

[1] https://www.schwab.com/resource-center/insights/content/unde...

I've had options at 3 companies that all went through some event.

1 - Company acquired after I left. I paid 3k for my shares when I left, made 3k net. Not bad.

2 - Company was self-funded when I left, paid about 2k for shares. When they took external investment years later, I needed to sell my shares, net 6k.

3 - Company I was still working for was acquired. I'm acquihired at a better salary & benefits, plus retention bonus after a year. Exercised my options at 4k to net 55k.

I've had a run of good luck, and, in each case, the cost to exercise my options was one I could afford to lose if things turned. If it comes up again, I'll have to evaluate where I am at that time. Each event is unique, you have to judge your specific circumstances.