Author Topic: invest in company stock options?  (Read 2232 times)

Case

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invest in company stock options?
« on: February 08, 2017, 12:16:51 PM »
I'm looking for recommendations on whether or not to invest in my employer's company stock options.

Basically, I can buy stock at ~15% off the current price.  Once I agree to the plan, I have to pay, but the purchase is not made until ~ 6 months from now.  I can purchase up to 10% of my salary.
Given this, if the stock price is the same in six months, I can sell immediately and make ~$1600.

However, obviously there is risk in this; the stock could fall (or could rise).  Let's just say I work for a certain chemical company which has some interesting events to come in the near future; it may be merging with another chemical company, and I don't know how this will affect the stock.  If you are familiar with the industry, than you have a 1 out of 2 chance of guessing whom I work for.

I'm tempted to take the risk and invest a little over 10 grand on this... but generally speaking I only invest in index funds.  If I do so, I willl most likely sell the stock as soon as I am able to, unless it is down (then I wait for it to rise).

Would you risk buying your own company's stock at a 15% discount?  Even though owning individual stocks is typically against the mustachian plan?

Financial.Velociraptor

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Re: invest in company stock options?
« Reply #1 on: February 08, 2017, 12:26:52 PM »
Check the fund literature.  These type of programs usually buy at a fifteen percent discount relative to the time of purchase (you can't lose).  Selling immediately usually means the 15% discount becomes taxable income in the current year. 

My old company bought twice a year and you got 15% discount to the LOWER of the two bookends.  You could get a steep discount in years the stock was climbing that way.  I always maxed the plan out.

Case

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Re: invest in company stock options?
« Reply #2 on: February 08, 2017, 01:11:01 PM »
Check the fund literature.  These type of programs usually buy at a fifteen percent discount relative to the time of purchase (you can't lose).  Selling immediately usually means the 15% discount becomes taxable income in the current year. 

My old company bought twice a year and you got 15% discount to the LOWER of the two bookends.  You could get a steep discount in years the stock was climbing that way.  I always maxed the plan out.

Ours has a pre-defined price per share they will sell it to us at, that is ~15% off of the current market value.  However, we decide to commit to it now, and the shares we end up with are whatever the market value is in 6-months.  So there is some risk.

seattlecyclone

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Re: invest in company stock options?
« Reply #3 on: February 08, 2017, 10:05:33 PM »
If you're permitted to sell right away after purchase, I say go for it. To lose this bet, the stock will have to underperform the broad market by more than the 15% discount you're given. There will certainly be some six-month periods where this happens. But participate in this program for several years and you'll find that the discount means you outperform the market most of the time.

Case

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Re: invest in company stock options?
« Reply #4 on: February 09, 2017, 07:35:43 PM »
If you're permitted to sell right away after purchase, I say go for it. To lose this bet, the stock will have to underperform the broad market by more than the 15% discount you're given. There will certainly be some six-month periods where this happens. But participate in this program for several years and you'll find that the discount means you outperform the market most of the time.

i will probably give this a whorl; your point about averaging out over multiple years is a good one

MoonLiteNite

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Re: invest in company stock options?
« Reply #5 on: February 10, 2017, 03:10:05 AM »
with a discount, you almost CAN'T lose money. Also, if they have a 2 dates for the offering period, you can easily make much larger gains with no extra risk.


Case

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Re: invest in company stock options?
« Reply #6 on: February 10, 2017, 07:52:23 AM »
with a discount, you almost CAN'T lose money. Also, if they have a 2 dates for the offering period, you can easily make much larger gains with no extra risk.

In fact, I definitely can lose money.  If the stock loses 15% or more value between now and 6 months from now...  Better odds than buying at no discount though.

trollwithamustache

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Re: invest in company stock options?
« Reply #7 on: February 10, 2017, 08:18:54 AM »

I personally would go for it. For one, the discount is nice. This large chemical company merger is probably a good thing. Your putting your money on the same side as a lot of investment banks/big boys.  This in and of itself doesn't guarantee you market beating returns, but I wouldn't want to be on the opposite side.  From an investment view, US natural gas prices are good for chemical companies even if they aren't well run. Finally, I suspect the 10k for you is a very small (therefore reasonable) position size for individual equity trades.

what happens if the merger drags on even longer? does that delay your 6 month window? you may need/want to keep the money tied up in this well over a year after the time you can sell.

RangerOne

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Re: invest in company stock options?
« Reply #8 on: February 10, 2017, 12:50:40 PM »
with a discount, you almost CAN'T lose money. Also, if they have a 2 dates for the offering period, you can easily make much larger gains with no extra risk.

In fact, I definitely can lose money.  If the stock loses 15% or more value between now and 6 months from now...  Better odds than buying at no discount though.

If they allow an immediate sale you really can't. If you hold them of course you can. I don't know of any company with an ESPP that doesn't discount the stocks a rate equal to or less than the market value on the date of purchase so you are guaranteed to start at least say 15% ahead of the market value. So you sell them same day you are not going to lose money.

I suppose it is theoretically possible for the stock to instantly drop moments after the purchase was made. Seems highly unlikely though especially at fortune 500 companies that are stable.

PizzaSteve

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Re: invest in company stock options?
« Reply #9 on: February 10, 2017, 05:55:29 PM »
with a discount, you almost CAN'T lose money. Also, if they have a 2 dates for the offering period, you can easily make much larger gains with no extra risk.

In fact, I definitely can lose money.  If the stock loses 15% or more value between now and 6 months from now...  Better odds than buying at no discount though.

If they allow an immediate sale you really can't. If you hold them of course you can. I don't know of any company with an ESPP that doesn't discount the stocks a rate equal to or less than the market value on the date of purchase so you are guaranteed to start at least say 15% ahead of the market value. So you sell them same day you are not going to lose money.

I suppose it is theoretically possible for the stock to instantly drop moments after the purchase was made. Seems highly unlikely though especially at fortune 500 companies that are stable.
You should read the OP.  He can't sell immediately.  One deal i was offered was 50% more stock, but a variable vesting 20%sellable per yearover 5 years.  These deals can vary in terms and yez you can lose 100% under some circumstances. I speak from personal experience.

MoonLiteNite

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Re: invest in company stock options?
« Reply #10 on: February 11, 2017, 02:44:27 AM »
with a discount, you almost CAN'T lose money. Also, if they have a 2 dates for the offering period, you can easily make much larger gains with no extra risk.

In fact, I definitely can lose money.  If the stock loses 15% or more value between now and 6 months from now...  Better odds than buying at no discount though.

If they allow an immediate sale you really can't. If you hold them of course you can. I don't know of any company with an ESPP that doesn't discount the stocks a rate equal to or less than the market value on the date of purchase so you are guaranteed to start at least say 15% ahead of the market value. So you sell them same day you are not going to lose money.

I suppose it is theoretically possible for the stock to instantly drop moments after the purchase was made. Seems highly unlikely though especially at fortune 500 companies that are stable.
You should read the OP.  He can't sell immediately.  One deal i was offered was 50% more stock, but a variable vesting 20%sellable per yearover 5 years.  These deals can vary in terms and yez you can lose 100% under some circumstances. I speak from personal experience.

I guess i worded that poorly, i should have said IF you have 2 buy periods. Meaning a start date, then 6 months an end date, THEN they take the lower value, and knock 15% off that, THEN you do a quick sale. you basically CAN'T lose money.

But in OPs case, since it is one offering period, and he can't do a quick sale. Then it is all on his faith in his company stock, from the TA or  Fundamentals side of things...

Alim Nassor

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Re: invest in company stock options?
« Reply #11 on: February 11, 2017, 03:39:33 AM »
My company's plan is 15% discount of the lower of the 2 prices on the start of the 6 month period or the end.  I can't believe the number of people who don't do anything.  I max mine out at 15% of pay.  Sure it hurts a little but this period if the stock stays where it is I'll be buying at 38 and selling at 66.   SWEET!