Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

What should you do with stock options during a recession?

every.to

Post reply on HN
Print view View original

31–40 of 243 posts

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

#31

Post by JumpCrisscross »

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…

> worst outcome is I make no money; the best is that I keep 70% of my shares without paying for them. They even pay AMT

I don’t have the details to be able to say anything useful. But there might be a narrow window of tax circumstances in which 70% of the equity without AMT but with loan costs is better than 100% with AMT + marginal long-term taxes and no loan costs. (Such schemes make sense if you’re concerned about not being able to exercise your options on short notice after getting laid off. If you have the liquidity, however, set it aside, take the yield and hold form after talking to a CPA.)

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

#32

Post by meatmanek »

This article uses your net effective tax rate to calculate the taxes on the bargain element -- 32.25% on someone earning $150k in California. They should be using your _marginal_ tax rate for that calculation, which would be 24+9.3=33.3% on the first 170050-150000=$20,050 of the bargain element, 32+9.3=41.3% on the next 215950-170050=$45900, and 35+9.3% on the rest.

Or, much easier is to use a calculator like the one they link[3], and calculate your total taxes on your current earnings, calculate total taxes on the earnings if you were to exercise, and then subtract.

I calculate $81,599-$38,038 = $43,561 in additional taxes, rather than the $41,893 they said.

I agree with the author's take on ISOs:

> It’s a bit complicated – and dry – so if you have ISOs you should probably talk to your tax person

My opinion on ISOs is essentially that for some middle ground between "few enough ISOs that you don't trigger AMT" and "so many ISOs that the potential tax savings are more than big enough to pay for a financial professional", it's not worth it to try and exercise ISOs early.

AMT on ISOs will complicate your taxes for years to come: in some circumstances, you can recover some of the money you paid as AMT on the ISOs in future years -- essentially, ISO bargain element is a specific category of AMT-taxable income which gives you an AMT credit for future years, which you can recover with form 8801 [4]. For several years after my ISO exercise, I was able to eat away that credit by paying the AMT tax amount when it was _lower_ than my standard income tax.

  1. https://taxfoundation.org/2022-tax-brackets/
  2. https://www.nerdwallet.com/article/taxes/california-state-tax
  3. https://smartasset.com/taxes/income-taxes#H3aXczXUcM
  4. https://www.irs.gov/forms-pubs/about-form-8801

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

#33

Post by jonas21 »

quesera wrote: post #24
jonas21 wrote: post #18

Earlier quoted context omitted.

No, only individuals can buy I-bonds. EDIT: that's not right. please see below.

This is not correct. Individuals can buy $10K/yr. Married couples can each buy $10K/yr, and you can buy the same amount for children. Also, businesses can buy $10K/yr, trusts can buy $10K/yr, and you can purchase $5K/yr with a tax refund. It would be not unusual to be able to buy $45K/yr (4-person household), and if one of the family is self-employed, $55K/yr. .... That said, don't buy lots of I bonds without first c…

Ah, you're right. I had misread this chart earlier. Sorry about that.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

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

#34

Post by atombender »

FinanceAnon wrote: post #22
johnchristopher wrote: post #2

I'd like to know what to do with ~10 000 euros, right now. Where should I put it so it doesn't lose its value and keep a bit with inflation ? edit for a bit of context: Western Europe, renting, unlikely to be able to buy/invest into a house/flat, looking at gold ingots, not the nerve for crypto.

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.

Rebalancing doesn't really work. That's another thing Bogle showed us.

Of course, if you need the cash, that's another matter. But then you arguably shouldn't have invested it in the stock market to begin with. If you have a time horizon less than 5 years, the market is just too volatile.

[1] https://youtu.be/1SLb1QJvTvg

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

#35

Post by subsubzero »

ushakov wrote: post #30
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

> holding cash at 0% as consumer prices are surging this no longer may be true my bet is on physical assets: guitars, gold, watches

Gold looks ok, I don't know about guitars but watches are plummeting just like the stockmarket.

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

#36

Post by subsubzero »

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 life and she has absolutely nothing to show for 3 brutal years of hard work. I guess the only thing is wait it out and see if the shares recover.

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

#38

Post by FooBarBizBazz »

mgarfias wrote: post #5

article starts off talking grants, but then is talking about options. Pick one man, they're not the same.

I get your point -- most people don't really know what stock options are or that they are different from shares -- but options grants and RSU grants are both grants.

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

#39

Post by UkrainianJew »

tmountain wrote: post #6
johnchristopher wrote: post #2

I'd like to know what to do with ~10 000 euros, right now. Where should I put it so it doesn't lose its value and keep a bit with inflation ? edit for a bit of context: Western Europe, renting, unlikely to be able to buy/invest into a house/flat, looking at gold ingots, not the nerve for crypto.

This is not financial advice, but stocks are getting cheaper every day. Invest into profitable companies that can weather the storm.

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. the shares you bought will lose half the value).

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

#40

Post by edgefield »

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…

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