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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?

#61

Post by notch656a »

sumedh wrote: post #50
notch656a wrote: post #41

Earlier quoted context omitted.

>"Never, never get out of the market." Cash is a market though, just a different market. If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. (of course, depending on timespan you may want to pick _which_ market you think best) It's been strange indeed. My highest yielding investment the past couple years was buying a new vehicle. Conventional wi…

> If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. What about the last 100 years?

Depends. Pennies from 1920? Beat inflation. $20 coin from 1924 ($20 was worth an ounce of gold, so it was just an ounce gold goin)? Beat inflation.

Dollar bill from 1922? Lose, but mostly because the fed reneged on their obligation of gold backing.

I believe If you held 100 years from 1805 to 1905 there wasn't much inflation at all.

So it really depends.

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

#62

Post by lumost »

maerF0x0 wrote: post #55

> If you leave the company, your options will expire if you don’t exercise them. Let me repeat that: if you leave the company, your options will expire if you don’t exercise them. The exact timeline of how quickly they expire depends on option type and company policy, but the termination window is commonly as short as 90 days. So, exercising your options enables you to actually own what you helped build. This is why…

I only had options at one firm which was Series D and had ~300 employees. The company issued them at a price which was rich, then steadily issued new options at lower price points. The management made it a practice to have periodic calls which would talk about how they were 12-18 months away from IPO and the price target was going to be ~5x the rich price. Then there would be talks where engineering management would pitch fantasies about how stock pricing worked for IPOs.

Meanwhile growth had stalled, and competition was getting stronger. I left all my options un-purchased. 6 years later when they had a Private Equity buyout I probably would have made somewhere between a -50% and 2x return (depending on liquidation preferences, subsequent issuance, and debt). At best.. I would have had an non-liquid 12% rate of return, losing out to the S&P500 over the last 6 years.

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

#63

Post by fortran77 »

nrmitchi wrote: post #57
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…

> The 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'm not 100% sure about this, but IIRC these programs are typically structured as a tax-free loan to you. If the shares end up worthless, the loan is then forgiven. So while you may not be out the principle of the loan, or the AMT, the forgiven loan may be taxed as income at some point in the f…

No. The worst outcome is you make no money AND you have to pay AMT on gains you never were able to realize.

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

#64

Post by shshshd »

ericmay wrote: post #48
pishpash wrote: post #44

Earlier quoted context omitted.

I don't know, people seem pretty greedy still. VIX barely at 30, PE10 near pre-pandemic highs, real yields negative out to 3-4 years, and markets are orderly. If you get weeks and weeks of 4% daily drops, real yields at 5%, and hedge funds being force liquidated like 2008, then you know real fear. Look at how far behind the Fed has gotten: https://www.longtermtrends.net/real-interest-rate/

(This is not financial advice) Ignore the "be greedy"* part of the person you are replying to (although your hesitation is kind of proving their point a bit) but follow the advice of the Intelligent Investor. When markets go up, everyone is happy to continue to invest. When they go down? People stop investing. That's precisely what you shouldn't be doing. Staying the course and continuing to invest regularly is key.…

This is great advice that bets that the system is a going concern. If the system collapses, then the bet goes sour.

Of course, if the system collapses green pieces of paper will be just as valuable as any stock certificate.

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

#65

Post by r00fus »

sakopov wrote: post #9
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.

Equities have been decimated. The housing market is starting to look like it's next. There is nowhere to hide right now.

Just a nitpick but

s/decimated/devastated/

Decimated means 10% death rate (usually as an brutal lesson). Did stocks lose 10% or did 10% of stocks just get liquidated?

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

#66

Post by lmeyerov »

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…

Most VCs liquidate most of their position around IPO except for really blowout exceptions, so that should tell you something about what the smart early money does on IPOs :)

We were in an ipo just recently with same-but-different setup:

- sold some immediately at the pop to recuperate the principal

- ... Note this may count as a short-term capital gain (- In retrospect, I should have examined the P/E ratio and sanity checked revenue growth against growing into a reasonable P/E multiple, and raised the floor based on that difficult road, but was lazy :) There are other ways to quickly handle risk for the private/public transition: something is better than nothing.

- we kept the rest bc we liked the company long-term, incl.desired risk, vs wanting to pay taxes to diversify it. It of course went way down below the pop, and markets now stink, but everything at this point is 'free money' that we are ok with. We view it as a long-term holding so are ok with that

- If it fails to go an upswing over the next couple of years, we'll sell at a more forgiving long-term capital gains tax rate. Likewise forced to bail sooner if tanks below market.

Everything happening now is basically profit, and we are ok with most outcomes. The real risk was pre-IPO, and the rest is about profit handling. If we had held even earlier-stage shares, as in the early employee or VC case, we would have sold more.

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

#67

Post by jrdngonen »

I help work on Compound (https://withcompound.com/) (author of the essay also works at Compound).

We help tech employees manage their finances and specialize in equity compensation.

Our essay on equity and taxes may also be useful to those looking to better understand stock options: https://manual.withcompound.com/equity-guide-for-employees-a...

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

#68

Post by dijonman2 »

lumost wrote: post #62
maerF0x0 wrote: post #55

> If you leave the company, your options will expire if you don’t exercise them. Let me repeat that: if you leave the company, your options will expire if you don’t exercise them. The exact timeline of how quickly they expire depends on option type and company policy, but the termination window is commonly as short as 90 days. So, exercising your options enables you to actually own what you helped build. This is why…

I only had options at one firm which was Series D and had ~300 employees. The company issued them at a price which was rich, then steadily issued new options at lower price points. The management made it a practice to have periodic calls which would talk about how they were 12-18 months away from IPO and the price target was going to be ~5x the rich price. Then there would be talks where engineering management would…

Options are typically not profitable unless you win the lottery. I view them as a scam and RSUs are met with the same level of skepticism.

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

#69

Post by anonymousiam »

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.

Options are not shares -- they are an option to buy shares at a specified price.

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

#70

Post by pavlov »

shshshd wrote: post #60
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.

10k is not that much money. I know it takes a lot of effort to save, but its small change. If you have somewhere to store it, buy consumable goods. - Several hundred dollars each of tuna, prosciutto, a wheel of Parmesan, jerky, rice, flour. - If you have an oil/wood heater fill up the tank. If gas buy plenty of wool sweaters. - If you have to drive to work, get a scooter. - If you live in Czechia, or Finland, (you're…

I can’t really agree with your prognosis, but honestly this advice is amazing because outside of the apocalyptic context it’s so fun. Got $10k? Buy a scooter, prosciutto and a wheel of Parmesan!

Why shouldn’t I spend like an Italian small-town bachelor in 1975, if the world is ending anyway.

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