Author Topic: Hold on to Options or Sell to buy Index funds  (Read 2045 times)

tpozywio

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Hold on to Options or Sell to buy Index funds
« on: July 11, 2013, 09:23:15 AM »
I have a decent amount of company stock options that will be vested soon.  The company is pretty stable (Walgreens), is it statistically better to hold onto them until closer to expiration (7 years), or take my money and stash it for safe/stable long term growth?
Thanks Crowd!

matchewed

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Re: Hold on to Options or Sell to buy Index funds
« Reply #1 on: July 11, 2013, 09:32:41 AM »
The way you are phrasing this leads me to believe that you are employed by the company. It is generally high risk to have stock in the company and work for the company at the same time as in the event of the company going under you will be hit on both employment and a chunk of your stash.

If this is not the case then it all depends on how you feel about owning an individual stock, your confidence level in that company and it's management to make the company profitable, and whether that stock is worth owning vs. owning an index fund (in other words what is your risk tolerance towards holding this stock?).

desrever

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Re: Hold on to Options or Sell to buy Index funds
« Reply #2 on: July 11, 2013, 11:52:58 AM »
Assuming these are truly options, and not RSU's. Exercising an option prior to maturity erases some of the value, so you've gotta weigh that against the value of diversification. My guess is that if you do the math (black-sholes) you'll learn that there are two cases: if the options are underwater or just barely in the money, the bulk of the value is in the growth potential over the remaining years, and you should hold onto them. But if the strike price is low relative to the market value today -- say 50% or more -- the value is mostly from the current in-the-money value of the options.

Seems like WAG pays dividends; that's a distribution of value to shareholders that doesn't flow to options holders. If WAG used the dividend money to buy back shares, that would be better for options holders like you, because it (in theory at least) would raise the share value.

In my personal case, I have a mix of RSU's and options -- I sell the RSU's early, and am planning on holding onto the options for as long as possible. This makes sense for me because those options are a relatively small part of my overall net worth -- less than 5% -- and I don't mind having medium-term exposure to my company's shares.

One other reason to hold onto the options that I don't usually hear considered (and it's definitely not in the traditional math models): following a big dip in share value, it happens that companies will re-price and re-issue underwater options that employees hold when there is a risk of employees leaving for better pay packages elsewhere. It's common at least in the tech world; I have been at two companies now where this has happened. Of course, this is only any value to you if it happens and if the share price subsequently recovers...

tpozywio

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Re: Hold on to Options or Sell to buy Index funds
« Reply #3 on: July 11, 2013, 02:41:43 PM »
Correct, I do work for Walgreens.  Some good points for me to think about, thanks!

grantmeaname

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Re: Hold on to Options or Sell to buy Index funds
« Reply #4 on: July 13, 2013, 06:41:03 AM »
There was a really good book on stock options mentioned a few months ago by another netizen - I think this is the one. It's probably worth a read to make sure you're getting the most value out of the benefit that you can. You can always request that your library buy it for you, too.