Stock options and IPO planning

[Texas Proud]

Quote:

Originally Posted by Dash man Lock up periods are typically used to prevent employees with knowledge of proprietary information that is not generally known to the public from trading on their proprietary knowledge for thirty days before an earnings announcement...also known as insider trading and very illegal. However, that applies regarding options to stock that is already public. Pre-IPO stock does does not have the ability to trade options for several weeks after the stock goes public. So the lock up period is company imposed primarily to stabilize stock value and aid in setting the IPO price.

I know it is illegal to trade if you have insider info... but the thread was not about that...

So, since we were talking about IPOs for someone who does not work there anymore and we assume has no insider info.... what are his options... and he is talking a year where they say he cannot trade his shares... if it is only a few weeks until options are available, then he still can protect his holdings with options for the remainder of the year...

[cathy63]

Quote:

Originally Posted by Texas Proud I know it is illegal to trade if you have insider info... but the thread was not about that... So, since we were talking about IPOs for someone who does not work there anymore and we assume has no insider info.... what are his options... and he is talking a year where they say he cannot trade his shares... if it is only a few weeks until options are available, then he still can protect his holdings with options for the remainder of the year...

It's only 6 months where he can't trade his shares. He could trade after 6 months, but if exercised at or before the IPO, he wouldn't have held them long enough to qualify for LTCG treatment on the gains.

He will have to read the plan documents that came with the options grant and any severance/termination paperwork he signed to find out what he can do with regards to trading the company stock or puts during the lockup period. Typically if you are subject to a lockup, you have signed something that says you understand you cannot trade the company's stock or any future interests in company stock during that time.

If caught, it's not that you are in violation of any law (assuming it's not insider trading), but you are in violation of the terms and conditions under which the stock was granted to you, and your options can be revoked.

[kcowan]

Quote:

Originally Posted by brett The best financial and career actions that I took were just about always counter to what the wags advised. I know a number of folks who are very sorry they accepted a DB buy out/ switch to DC plan. Interest rates were high at the time, the buyout number was therefore low. They listened to the know it all wags at work without doing any analysis on their own situation.

Yes I ran the numbers and accepted the immediate payout of a reduced DB plan. One of the very few. Subsequent offers did not even include that option so I assume the numbers guys changed their discount rate assumptions to something like what I had used.

[petershk]

I think without considering the complete financial picture it's hard to answer.

About 5 years ago it became clear to me that my ISOs that I assumed would be worthless (as they always were before) would potentially be worth a lot. By a lot mean about 30x my then net worth.

The liquidity strategy was murkey though. So I had a cost basis of a few pennies and a FMV of around $30. If I exercised and held the taxes would be most of my net worth so there's no way I would do that.

My operating thoughts are don't risk what you need to get what you don't.

So I waited until the liquidity event was obvious expecting that even if I paid income taxes (turning ISO into NSOs basically) it was more money than I needed to retire. If I had bought the ISOs and held it would have saved me TONS of taxes but if there has been no liquidity or an IPO crash I would have been kind of wiped out. So... I overpaid taxes, and protected my savings.

If I had 30x my net worth and the ISOs were more like 20% of TNW I certainly would have exercised and held.

I plan more or less for worst case... I lose some upside but that's ok because I protect the downside and rest easily knowing I avoided disaster as much as possible.