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What should you do with stock options during a recession?

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Re: What should you do with stock options during a recession?

#221

Post by sbf501 »

bmitc wrote: post #158
sbf501 wrote: post #139

Earlier quoted context omitted.

One step further: Options are just a way for companies to get out of paying you a salary. (I got them from Microsoft, and from Intel before they were offered to all employees.) Options = salary In other words: exercise them as SOON as they vest. I had two financial planners tell me that over 15 years (I fired the first one), and both were 100% correct in hindsight.

But how do you determine if (not when ) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I hav…

You are in a space I don't understand. (I don't even understand how/where you purchase options if it is not publicly traded and you are not an investor!)

Sorry, that's a PhD-level question, I'm still at options 101. :(

Re: What should you do with stock options during a recession?

#222

Post by bradstewart »

bmitc wrote: post #158
sbf501 wrote: post #139

Earlier quoted context omitted.

One step further: Options are just a way for companies to get out of paying you a salary. (I got them from Microsoft, and from Intel before they were offered to all employees.) Options = salary In other words: exercise them as SOON as they vest. I had two financial planners tell me that over 15 years (I fired the first one), and both were 100% correct in hindsight.

But how do you determine if (not when ) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I hav…

It comes down to whether or not you think the company will have a successful liquidity event.

If you think the company is going to shutdown, or sell at a lower valuation than your option's strike price, don't exercise them. Your shares will be worthless.

If you think they'll succeed and IPO or get acquired at a higher price, buy them (factoring in any potential tax implications, like AMT). It is a risk.

Re: What should you do with stock options during a recession?

#223

Post by peter422 »

tdumitrescu wrote: post #213
peter422 wrote: post #155

Earlier quoted context omitted.

There is no reason to work anywhere for more than 4 years. Vest the options, which have a 7-10 year exercise window because you’d only take a job at a company that had them, then quit and get another job and take another shot. Your lottery ticket remains whether you are working there or not. The only reason not to leave after 4 years is if you are a founder or the company is giving you extremely generous compensation…

Every company gives refresher grants. If you only got 1 grant over 4 years, then the company doesn't care about retaining you.

If the company is growing and in the “lottery ticket zone,” there is no chance a refresher grant should be a meaningful change to your potential outcome (for example: 20% more equity over 2 years is not worth the opportunity cost of getting 2 years of equity at another company).

If the company is growing so slowly that you could get a meaningful refresher grant, then you should move to another company that is growing faster.

Re: What should you do with stock options during a recession?

#224

Post by scarface74 »

skinnymuch wrote: post #214
scarface74 wrote: post #211

Earlier quoted context omitted.

Companies are slowing down hiring and the startups and recently public companies are laying off people and freezing hiring. I’m older (48) and fell into BigTech via the cloud consulting division - cloud application development. I never had to go through the leetcode grind. But my path was very narrow and I recommend that people go through the leetcode grind.

Ah yeah I was not sure if that’s what you meant. I’m older relative to college grads or graduate students. I’m switching to programming as a full time career now after coding on my own for a long time. I’m now trying to pivot to getting any meh job and then grind through leetcode in spare time. Vs do the grinding and possibly find myself unable to get a decent job. Of course I’m not necessarily going for big tech for…

I only know about small non tech enterprise companies where I never had a serious coding interview and was able to lean on my experience and my most recent job at BigTech where I didn’t go through any coding interviews, was able to lean on my experience and did have a couple of System Design rounds where I had to explain real world implementations.

From what I understand, for more senior level software development positions, they still put you through coding, system design and behavioral.

Re: What should you do with stock options during a recession?

#225

Post by bradstewart »

sbf501 wrote: post #221
bmitc wrote: post #158

Earlier quoted context omitted.

But how do you determine if (not when ) you should exercise? I am trying to make this decision for a company I recently left. I don't know when they'll IPO. I know they wanted to, but the market is getting slammed, and they just announced layoffs. I don't have much confidence in the company, so I am having a hard time understanding the risk. I don't really even understand what happens if they don't ever IPO and I hav…

You are in a space I don't understand. (I don't even understand how/where you purchase options if it is not publicly traded and you are not an investor!) Sorry, that's a PhD-level question, I'm still at options 101. :(

The company itself issues you the options, usually as a form of compensation because you're an employee, etc.

That option is a certificate that gives you the ability to purchase a share of the company at a specific price (the strike price). Usually when people say "buy their options" or "exercise their options", they are referring to buying the _stock_ that their options gave them the ability to purchase.

So if I join a startup, they grant me 100 options with a strike price of $0.50, and I decide to exercise them, I would write the company a check for $50 and get 100 shares of the company in exchange.

Re: What should you do with stock options during a recession?

#226

Post by peter422 »

gambiting wrote: post #198
peter422 wrote: post #155

Earlier quoted context omitted.

There is no reason to work anywhere for more than 4 years. Vest the options, which have a 7-10 year exercise window because you’d only take a job at a company that had them, then quit and get another job and take another shot. Your lottery ticket remains whether you are working there or not. The only reason not to leave after 4 years is if you are a founder or the company is giving you extremely generous compensation…

>>There is no reason to work anywhere for more than 4 years. I sometimes feel like no one on HN actually enjoys what they do. It's strange.

I’m one of the few people that does, but for me it’s because I actively played the startup game early in my career to maximize my lottery ticket chances.

The worst thing you can do is spend too long at a loser company when you are early in your career. And it often is hard to tell when you don’t have a lot of experience. That’s why rules like “don’t spend more than 4 years at a company” and “don’t put all your eggs in one basket” are good general roles even if you like the company/job. Because you might like the other job just as much and make 10x the compensation if the lottery ticket hits. I have many friends that hopped from jobs they liked to Airbnb circa 2017-2019 and… they are all very happy they decided to get another lottery ticket.

When you are later in your career it’s much easier to pick jobs and companies you want to work for because you know what you want and you now what questions to ask before you join.

Re: What should you do with stock options during a recession?

#227

Post by nopzor »

roflyear wrote: post #85
UkrainianJew wrote: post #39

Earlier quoted context omitted.

There's one caveat. Say a profitable company pays $1M dividends. With the industry-average 3% yield, this puts market cap at 32M. Currently you can get 3% risk-free with government bonds, and this number will go further up as the interest rate rises. Say, it goes to 6%. Now, in order to be competitive with bonds, the profitable company will need to find a way to pay 2M in dividends, or its cap will drop to 16M (i.e.…

Plenty of stocks have value and pay zero dividends.

and that’s why such stocks have fallen so much, as interest rates have risen. the two of you are actually agreeing with each other. the principle is similar.

Re: What should you do with stock options during a recession?

#228

Post by s1artibartfast »

refurb wrote: post #58
s1artibartfast wrote: post #46

Earlier quoted context omitted.

They are talking about the shares, which are already fully owned and liquid. The question is to sell them and invest the cash somewhere better(??) or HODL.

It's a startup before IPO, so not liquid (unless the company offers to buy-back). This is a great reason to value options at $0 when taking an offer. It's a lottery and you shouldn't assume you'll see any money from then. If you do, it's all gravy.

You missed the part where they said they are now post IPO

>Her company went public and the stock jumped and then crashed,

Re: What should you do with stock options during a recession?

#229

Post by unicorn_eng »

molsongolden wrote: post #177
unicorn_eng wrote: post #163

I'm currently at a unicorn SaaS startup. I have 11,500 ISOs, about 7000 of which I've vested and exercised (I've got about 1.5 years left till I'm fully vested). My strike price is $1.50, which to me is a bargain, especially since there was a tender offer last year of around $14. There are ~70M outstanding shares. Other stats: $60M ARR, 120% NRR last year, almost 100% YoY growth during 2021, raised $110M at 40x reven…

Extremely simplified thought exercise with very rough possible #’s: Vesting 2,875 shares per year 2,875 @ $(14-1.50)= $36k/yr Assuming IPO @ $200MM ARR, public cloud SaaS benchmark rev multiple was roughly 20x last year before the crash. That’s a $4B valuation, ignoring dilution from here to there: $4B/70M shares = $57/share 2,875 @ $(57-1.5) = $160k/yr That’s assuming the market recovers to a similar level, ignoring…

That's really helpful, thank you!

Re: What should you do with stock options during a recession?

#230

Post by atombender »

atombender wrote: post #34
FinanceAnon wrote: post #22

Earlier quoted context omitted.

I would just hold it - I have sold most of my index fund holdings in the past 6-9 months and been just holding cash. I don't think stocks have reached the bottom yet, so holding cash at 0% return is still better than negative returns from stocks. Right now, it's about not taking losses. I also don't see the market and economy rebounding quickly after reaching bottom - they will stay flat for a while IMHO

As a counterpoint, I would quote the great John C Bogle: "Never, never get out of the market." [1] Knowing when the market has reached the bottom is not really possible. During the dot com crash in 2000-2001, investors sold all the way down to the bottom (and lots of them sold at the very bottom), and then they eventually sold all the way up to the peak, when instead they could have just held onto their shares. Rebal…

> they eventually sold all the way up to the peak

Edit: Bought all the way up.

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