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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?

#231

Post by anon291 »

vishnugupta wrote: post #150
anon291 wrote: post #23

I'm planning on exercising some of mine (in the post-resignation 90 day period) via EquityBee. I don't want to lower my own cash reserves now due to a looming recession, but do believe the company has upside. EquityBee (and a few other companies, like vested, all of whom I think are legitimate) gives me money to exercise the options in exchange for ~30% of the shares should the company go public, plus repayment of th…

That's interesting. Do EquityBee cover for your tax liability too?

Yes. They covered mine at 100% of the max AMT. So basically that's option count * (FMV - strike) * 0.28, which is the max I can pay. I pocket the difference, but of course I have to pay it back should the company have a liquidation event

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

#232

Post by lamontcg »

The big thing to avoid is exercising at a high price, paying all your taxes, then watching the shares plummet the next year, and eventually selling at a loss and winding up with only the maximum carryover cap gains loss every year after that.

So the worst outcome is that your strike is $1.28 you exercise at $3.13 (costing you $80k + $40k in taxes or whatever -- it gets worse the better the stock is doing, which is one of many reasons why early exercise of options is risky but good) but you're stuck in a holding period while you go public, then when you exit that period you're at $0.50 or something like that, and you've passed over into a new tax year, and you have no cap gains to offset the losses on the stock.

This happened to a lot of employees at dot com companies in the 2001 collapse.

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

#233

Post by kqr »

atombender wrote: post #200
kqr wrote: post #132

Earlier quoted context omitted.

> Rebalancing doesn't really work. That's another thing Bogle showed us. Wait, what? Rebalancing has worked very well in my backtesting, assuming the fairly generous trading fees I get, at least. What are you referring to?

Bogle did extensive analysis on the impact of rebalancing (between stocks and bonds) on historical portfolio returns, and decided that it does not meaningfully increase your returns. His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to you…

Another way to phrase the reply you have already had: because these assets are martingale.

In other words, to the extent good historic performance says anything about future performance, that effect is already priced in. This means you shouldn't hold on to a historically good investment just for that reason -- it's just as likely to be a loser going forward.

If you determined that the amount of risk you're willing to put into equity is 60 %, the only thing that happens if you let it drift up to 70 % is that you increase your exposure to equity higher than you originally intended.

Maybe you have good reason to do that, but historic good performance is not that reason.

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

#234

Post by kzzzznot »

RexM wrote: post #147
8note wrote: post #130

Earlier quoted context omitted.

Valued at $0 because thats what theyll be treated as when the founders and moneyed investors get paid out first. Sure, options are how you get rich from a startup, but you dont get rich at a startup by working for one, only by being a founder or an investor. That's why I work at a FAANG:P startups exist to screw their employees

That’s a new one for me, what’s the P?

I think it combined with the : (missing a preceding space) was supposed to be a sticky-tongue-out emoji

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

#235

Post by subsubzero »

twiceaday wrote: post #56
subsubzero wrote: post #36

I gave my Wife money to exercise her ISO's(startup before IPO) for her first 1.75 years of shares when the company valuation hadn't changed. Her company went public and the stock jumped and then crashed, I think the current price per share is lower than her exercise price so she is underwater and the money I gave her is worth less as shares vs. cash I originally gave her. Really a huge bummer as this job up-ended our…

I advise you to think 'if I had the value of these shares as cash would I spend 100% of it on shares of this company?' The loss already happened, that part is done. The shares have no memory and won't 'rebound' like a rubber-band just because they were down before. What matters is new things that the company does going forward, relative to all other companies.

So I think the company is solid, leadership great, product great etc. its just the stock is in the toilet, she is not selling right now, its just a bummer dealing with all the work she put in, the forced relocation, and personal money put into this company.

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

#236

Post by subsubzero »

s1artibartfast wrote: post #46
edgefield wrote: post #40

Earlier quoted context omitted.

This is the sunk cost fallacy. The best option might be to leave and find something else.

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.

We don't need the money so right now its HODL :)

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

#237

Post by astrange »

kortilla wrote: post #182
astrange wrote: post #174

Earlier quoted context omitted.

Fairly sure maybe half of MANGA knows what leetcode even is. I for one don't know what it is.

It’s how the interview process works for all swe hires and MANGA. You just don’t know it name.

I do interview people at a MANGA and think I know more about it than you do.

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

#238

Post by ggm »

lumost wrote: post #203
ggm wrote: post #136

Earlier quoted context omitted.

long-term average is 6-7% in the big picture. 12% is good, even if it not S&P good.

Yes, however in a less aggressive tech market the return would have probably been 0. This was also the best case, the P/E buyout and subsequent funding injections may have diluted the value of those shares.

My point was to the people aiming for 100x or better gains. I didn't speak to the downside, you're correct of course: no specific vesting tends to the aggregate, and many are a long way adrift.

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

#239

Post by dqpb »

phendrenad2 wrote: post #156
dqpb wrote: post #108

If the answer isn’t “exercise them” why are you working at the company?

Dinosaurs won't hire me because I don't have a college degree. MAANGA won't hire me because I'm not good at leetcoding. That leaves startups.

Well, if you're at a startup which hasn't gone public yet, then really it depends on what the strike price is, what the fair market value is, what your confidence in the startup is, what funding rounds are expected, what your tax situation is, etc. I think the relationship between these variable is more important than just recession vs not-recession. Also, if they're cheap and you believe in the startup, just buy them.

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

#240

Post by yellowapple »

dnissley wrote: post #95
_carbyau_ wrote: post #92

Earlier quoted context omitted.

For a lot of people, both! There are lots of people with zero shares and a simple dream to own their home. This is looking hopeful for many.

This is zero sum thinking -- however many people this helps, it will take just that many getting hurt in order for it to happen. Doesn't solve the root of the problem in the least, it's just a wealth transfer.

> however many people this helps, it will take just that many getting hurt in order for it to happen

This presumes that the number of people this helps is equal to the number of people this hurts. That's unlikely, given how wealth concentration tends to work in capitalist economies (that of the US included).

But yes, we need to address the root of the problem - the root of the problem (as applied to housing) being the fact that land is treated as ownable property in the first place. That's fine and dandy, but that produces rather nasty externalities that are long overdue to be internalized - specifically, via land value taxation.

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