Basics › Volatility

When markets are on a wild ride, stock volatility can rattle anyone's financial plan for equity comp and company shares. What should you do with shares acquired from equity awards now? Should you change your strategy or ride it out? This article provides a financial planner's insights.

For reasons beyond your control, you may find yourself in a position where you suddenly need to sell stock for cash to meet urgent living expenses. When selling stock you must always proceed with caution. Review this checklist of topics to understand on tax, company, brokerage firm, and SEC rules.

Emotions can have a powerful impact on financial decisionmaking. The study of behavioral finance, i.e. how people make decisions about investments and other financial matters, can help you to develop a sensible approach to stock compensation and holdings of company stock.

One good thing about employee stock purchase plans (ESPPs) is they can't be "underwater" like stock options. In fact, an ESPP with a discount and a lookback can be a good deal even in down markets. This article explains the unique shelter from volatile and falling stock prices that ESPPs offer.

Whether you are a novice or advanced investor, it can be hard to decide what to do with your company's stock grants. Should you exercise options now or wait? Should you hold company stock at vesting or sell it and reinvest? Behavioral economics and investor psychology offer insights that can help you develop a personally acceptable approach.

You may feel let down by your stock options if your company's stock price has dropped, leaving your options underwater. Getting less than you expected is something that inevitably occurs in a free market, and it is helpful to be prepared for losses as well as gains.

When stock markets rise, question the urge to exercise your options for quick profits as soon as possible. Exercising too early can be a big mistake.

Your option grant terms and the behavior of your company's stock price are only part of your financial-planning story in volatile markets. Equally important is the price movement of what you will buy with the proceeds from an option exercise and stock sale. As this article explains, relative changes in price, not absolute changes, are what matter.

Even when stock prices are volatile, there are still opportunities to achieve gains from stock compensation. This article presents a range of ideas to consider: buying stock now to swap later, exercising and holding ISOs, or making a Section 83(b) election for restricted stock.

The number of companies, and their employees, with underwater stock options has substantially increased, especially since the historic drop of the stock markets in October 2008. Various surveys and corporate examples show that...

While it is too early to know exactly how stock grant practices may change because of impacts from the Covid-19 pandemic in 2020, there are some lessons from what happened in past big market drops...

No. When your exercise price (e.g. $10) is higher than the...

Wishful thinking! Just as you are not taxed on the value of the options at grant, you may not write off any expired unexercised options, whether underwater or in the money...

An options exchange is an alternative to repricing underwater stock options. Most companies set an exchange ratio of underwater options for new ones at the current market price so that the total value of the new options is equal to that of the previous options. Alternatively...

Deciding whether or not to accept an options exchange involves many variables, including the potential for...

With approval from the board, and perhaps also shareholders, your company can modify outstanding grants in a way that is consistent with its stock plan. However, it should avoid tax pitfalls for you and the company, such as...

While stock option exchanges usually do not create tax consequences for participants who are US tax residents, employees who are tax residents of other countries may be taxed when...

Very few companies arrange a straight repricing of outstanding options. Companies concerned about widespread and deeply underwater options may offer...

The standard option-for-option exchange is not taxable. When you exchange underwater options for restricted stock, the value of the shares...

This is wishful thinking, because these are two separate transactions. It does not make sense to...

Generally, the exercise price cannot be raised without your written consent...

You recognize ordinary income for the full value of the cash payment. Any deferred portion of the cash sale proceeds is not taxable until...

This depends on the provisions in your stock plan and the structure of the merger or acquisition. According to the flexibility for adjusting outstanding grants that your company's stock plan provides, the buyer can...

This depends on whether the ISOs are already vested. According to the final IRS regulations on ISOs...

In a public company you would never exercise underwater stock options. In a private company...

When the net intrinsic value of the stock is zero, the attorney for the nonemployee-spouse has two ways to obtain...

When options are exercised, generally the estate or beneficiary is able to take an income tax deduction for the amount of estate taxes already paid by the estate. But when they are not exercised you cannot take the deduction against other income...