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The above would be called an American Call option. There isn't a better way to bet on the future of the underlying. Very simply a stock option is a contract which gives you the option to buy stock at a specific price. But that IS what she is doing by leaving it all in one stock. I'd rather take the guaranteed discount and be done. I just mean there's a reasonable expectation the company won't tank. Options are bought and sold on a group of shares, so in the example above where an IBM Aug.

So when I was hired, the company granted 50 shares of the company stock, which I guess are 'vesting' over time. 3+ years later it seems I have

Want to add to the discussion?

They sell in manageable chunks. Correct; unless someone's looking at your portfolio - you aren't going to hit anything on anyone's radar.

Large orders do move the market less so one one of the largest companies in the world, but on mid and small caps for sure. The company's goal is to ensure that the employee believes they will gain if the company does well. The company's intent is that the employee retains ownership as long as they are an employee. That doesn't in any way benefit the employer. Mind you, I am not saying this is illegal or anything.

If it's legal in the agreements then whatever. It's definitely against the spirit of the offer, though. Well the spirit of the offer is to trick employees into feeling like they're partners in the business. That's not tricking, it's actually the truth. Owning stock makes you a part owner which is what a partner is. Partner literally comes from part owner as in the words themselves.

Not really if I buy a stock from Apple am I a partner of Apple? Do I have any say in how the business is run from a day to day basis, no. I merely own a small percentage of the business, and if the business does well it's value increases and I have the opportunity to sell the stock at this higher price to make a profit. Stocks are meant to be traded so when a business offers stocks at a discount they are fully aware of the possibility of it being sold off. Its not a good idea to invest all your money into one company your much better off spreading your money out.

Now if you own the amount of shares that most reasonable people own, your vote doesn't count for much. But you do get to vote. You often even get a right to attend shareholder meetings. Most people just give their votes away to someone who can vote by proxy on their behalf. I was under the impression that the board of directors were the people who decided matters by vote things not decided by CEO.

And I thought it was organized this way because the members of the board total a majority of the company which allows gives them majority vote. Shareholders elect board of directors. Typically the board hires at least the CEO, and is likely consulted on the hiring of other key executives. It doesn't make sense to have a blanket statement like "It's not a good idea to invest all your money into one company". Warren Buffett was for a long time the richest person in the world based largely on an early investment of pretty much all of his and his investors money into one company Berkshire Hathaway, a textile manufacturer.

If you had invested all of your money into Apple stock the year before they invented the iPod and consequently before their stock price started skyrocketing, that would have been a good idea. Whether it is a good idea or not depends entirely on the future economic results of the company.

Any blanket statement made here will be wrong as often as it's right and is therefore not worth making. That's much more accurate. What happens to your account balance after you invest everything is much more random than what happens to your account balance after you invest all of your money into some total world index fund. The only reason to invest widely is because you are willing to give up large upside potential in order to reduce large downside potential.

For most people, that's a good trade off. If you have the ability to control the same risk without the downside of limiting your potential gains, it's often better to do it that way. I would definitely call that risky, but you are probably right to say that it's probably fine to call PowerBall a bad idea also.

The difference is that it's a lot easier to manage risk when investing in single companies as compared to the powerball. All the richest people in the world got there by investing in single companies or by being the kids of people who died after they invested in single companies. You mean the 1: This is not a fair comparison for having some of your investment be in a Fortune company, even when you take into account that you also earn your income from that same company.

Don't be coy, you have valid points but your hyperbole will lose a lot of the audience that deserves to hear your point of view. However, if "The company's intent is that the employee retains ownership as long as they are an employee", why wouldn't they easily setup the agreement to require a specific holding period?

Similar to a vesting period for RSUs. Because the costs and other drawbacks of doing something different outweigh the losses from being ripped off by the employees. Laws also do need to be followed, even if they are detrimental to the company. I think if you look, you'll see that the majority of people who participate in these plans does exactly what I described, esp if they are smart.

Only downside would be the immediate impact of capital gains taxes, which you'll pay eventually anyway. If the company wants to align interests, then they are typically issuing options, or requiring longer periods before you are allowed to sell. A Fortune company worth hundreds of billions doesn't really need to align interests the way a 12 person startup does.

I've never seen one that allows for immediate selling. There is always at least a period of some decent amount of time before you can sell. So at any given point in time the employee still has at least some of their funds tied up in the company. Options in no way align interests with the company. They are much worse at that than direct ownership is.

I would say that options are actively harmful and encourage employees to actively try to screw the company and that they are far better at that than direct ownership is. I would not really advise companies to use options plans ever except as a last resort way to acquire a really key employee that's worth losing a lot of money on CEOish. I agree that it's good that employees at any given time do have some assets tied up in employer stock, but it doesn't really matter if the amount is so small as to not even encourage the employee to invest themselves in the success of the company.

That's basically where you sit with planned and routine selling ASAP. The size of the company doesn't have much to do with the desire of the employer to align interests. The employer always wants the employees to have aligned interests to the greatest extent possible. All these really are, are immediately exercisable options. Options are just less liquid in a non public company. But the idea that you are granted them, and they sit there doesn't make them any less motivating.

You didn't even have to shell out cash when you got them. Unlike the plan described by OP. In a big company your ownership status has very little to do with your productivity and buy in. You simply can not swing the needle with individual efforts. If you work at Shell Oil, whether you work 30 hours a week or 60, you likely aren't going to have a meaningful impact on the bottom line.

If you ARE an employee who can make those types of swings, you are likely seeking more direct compensation in the form of bonuses tied to performance. Think something like a Goldman Sachs trading desk director. He gets a cut of what his dept generates. If you factor out the fact that options are usually leveraged and other stuff like how the values are calculated, yes.

My spouse works for a privately owned company. They have both equity and options grants. My wife had to choose between them when she got her grant. The equity stake was basically free money that has really very little ability to be converted no open market, can only sell once or twice a year when the owners evaluate company value. The options were 5x in number and unlikely to ever pay out more than just taking the straight equity would.

If the management ever evaluated too high it would be a huge financial loss for the company. OTOH, if employees in a employee company each had a significant long term equity stake and they each believed that everyone else was acting in the long term interest in the company, I think they could collectively move the needle. Well it sounds like the company your wife works for didn't do a good job setting up it's program.

In general everyone should be acting in the best interest of the company to begin with it. For me, options and equity are incentives to go above and beyond, or to work for less cash compensation. The startup is the classic model. If we go big, you'll be rich, and I'll be a little less rich, but for now, let's go kick ass. I agree that they didn't. It's pretty ridiculous how the plan is setup and it's not that uncommon.

Come chat with us on IRC! Stocks or Portfolios ELI5 - employee stock options? So when I was hired, the company granted 50 shares of the company stock, which I guess are 'vesting' over time.

A coworker explained it that its in my best interest to basically delay selling exercising? Does this all sound about right? This is a friendly reminder to visit our FAQ entry on Investing. You might also benefit from this common topic: Also, please visit our FAQ! I am a bot , and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns. First off, the price of the options you were granted is called the "strike price".

Just wanted to know what your opinions were and if you guys enroll in similar plans or not. They're best used as income supplements - buy the stock at a discount, sell it as soon as you're able to and pocket the immediate gain. The main difference is that the discount spread the amount between your discounted purchase price and the closing market price on the day the purchase happens is treated as income tax for the first two years of holding the stock technically, the two years is counted starting from the beginning of the withholding period, so if your company holds for 6 months you still have to wait 18; if it holds for 3, you have to wait After two years, things get a little trickier as it's still not just a simple capital gains calculation with the discount price as your basis.

Since holding a single stock long term is risky, and you'd have to hold two years to get favorable taxable treatment, you're better off selling immediately. Your employer will add the discount spread amount to your W2 and withhold taxes for you, and if you sell immediately your gains from your new basis of the closing market price on the day of purchase should approximate 0. Don't think of ESPP as buying stock, where you buy stock to hold long term.

Think of it as a small bonus for deferring a portion of your income. If a downturn or other bad event happens, it's always more painful to slam on the brakes when the company is moving fast, which can lead to layoffs being more sudden by the time the company realizes it.

Another way to say it would be: Enron was a very hot stock for a while. Many of their employees had a great deal of their retirement savings in Enron stock. Always have a diversified portfolio. Take a look at the Fortune list from Now look at the most recent list: Sure, there are some companies that are still in the list. However, there are a lot of companies that didn't exist 45 years ago that are in the now, while some of those old companies may no longer exist, at least as independent entities.

There is no such thing as a If it is obvious that the company will grow, than the market will have already adjusted the price of the stock to reflect what it is worth. The only way that you could possibly know better than the market is if you have insider information that isn't available to the public, and if that's the case making trades based on that information is illegal.

So if you have insider information that your company is going to do well, it would be illegal to participate in their ESPP?

Not under some circumstances. You can trade while having material, nonpublic knowledge , so long as the trade itself isn't based on that info. For my company, I can only choose to auto sell or hold 6 months out. What is the thought on holding them for a year, if historical trend is positive for the company, to avoid additional tax.

Hah, I guess that is a silly way to put it. I just mean there's a reasonable expectation the company won't tank. It's actually very risky because it doesn't take much for even a great company to lose a lot of value. Apple has had periods during this huge run up where they've lost a significant amount of value.

In almost every company took a huge hit. The real risk is that if your company or the economy take a huge hit you could lose a lot of your investment and get laid off -- that double whammy is rarely worth holding a significant amount of your portfolio in your own company's stock. Enron is the classic example, if a bit unusual. I recently read that former employees of Radio Shack are suing over company stock in their retirement accounts. Apparently a lot of people are prone to overly optimistic views of their company's prospects.

Owning a lot of stock in your employer is a bad idea, because if your employer goes south, you lose both your retirement savings and your job at the same time. What kind of tax hit do you take on this type of plan? Is that worth taking advantage of? I have it set to auto sell immediately locking in that gain, then transfer the cash to my IRA.

Do most trading platforms have an option to automatically sell? I'm doing an ESPP for the first time this year. I believe they said that the shares would be accessible via etrade.

This money is deducted post income tax withholding deductions, so if you set up your withholdings right, there's no extra bill at the end of the year. Every 6 months you get a discount on the purchase price of the stock. The purchase price is the lesser of the price of the stock at the beginning of the offering period and the price of the stock on the purchase date. Normally you'd have to pay taxes on the discount as income immediately, but because this is espp you don't have to. You have to pay when you sell though.

When you sell the stock, you have to pay income taxes on the discount and gains taxes on any gains above the Fair Market Value price on the date the stocks were purchased for you. However, it's slightly more complicated than that because the "income" tax part shifts based on whether it's a qualifying or not.

This can lower the amount of tax you pay. If you sell immediately, you owe income taxes on the actual discount and that's it ok maybe a few cents of short terms gain that accrued between when the stock was purchased for you and when you could sell them.

If you hold and then sell when the stocks are disqualifying even if the gains are considered long term , you will income taxes for the actual discount just like above, even if the total value of the stock is now worth less than the amount of income tax you owe.

The loss between FMV at purchase and sell dates is a capital loss.

Welcome to Reddit,

ELI5: Can someone explain Stock Options and how they work? (haxspace.cfnlikeimfive) I was formerly in the stock option group for a bulge bracket firm that Reddit folks dislike. permalink; embed; save; parent; so the idea is that if you pay an employee with options, they will be motivated to make the company more valuable. As an example, many people invested heavily in employee stock options in LinkedIn and they only are making money after the ridiculously high MSFT purchase. Many of them were underwater on their stocks. Investing What are your opinions of employee stock purchase plans? (haxspace.cfalfinance) submitted 2 years ago by through an employee stock option or purchase plan. They can only report the unadjusted basis — what the employee actually paid. To avoid double taxation, the employee must use Form REDDIT and the ALIEN Logo are.