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This question already has an answer here:

I am a new hire at a large private company that is undergoing some rapid growth. I hope to stay with this company for at least the next few years. At my hire, I was offered stock options equivalent to one year's salary--fully vested after five years--and the first batch of those is now available for purchase.

Please forgive any incorrect vocabulary or lack of pertinent details, but that brings me to my question: I am fairly financially illiterate. I have looked up what "stock options" and "vesting" and so forth mean, and I more or less understand it, but I have no idea whether it's a good idea or not. I understand there are no guarantees with the stock market, but I'm wondering if anyone can tell me things I should consider when making this decision.

My company is growing and I believe the stock is currently increasing in value. Our company is very large and I believe in its business model, which seems poised to do very well. I suppose we're technically a startup, but we have 8000 employees and locations across the world.

Not sure which of this is pertinent but:

  • I am married, and we have a combined income of approximately 200K.
  • We live in the US
  • We have the majority of our $450K mortgage outstanding (we've owned our home for just two years).
  • We have approximately 35K in credit card debt which we are rapidly paying down.
  • We have about 100K in student loan debt (mostly my husband's) which we know we will be paying down for quite a while.

marked as duplicate by Grade 'Eh' Bacon, Joe, Dheer, Pete B., MD-Tech Jul 10 '18 at 11:04

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • The duplicate answer list all the risks but the significance of each one is very different for a public vs a private company. This is much trickier for a private company and especially the AMT treatment of ISO options can result in significant financial losses. There are scenarios where exercising at vesting is a good idea, but generally the risk is quite high. Sometime exercising BEFORE vesting is smarter if you file an 83(b) election – Hilmar Jul 10 '18 at 12:43
  • Your edit doesn't seem to affect the relationship of this question to the previous question. Primary risk of not exercising: you may pay more tax in the future. Primary risk of exercising: you pay more money up front that you might better use paying down debt. Realize that you have few options for selling your stock after exercising. If you wait until the company goes public, you'll have many options, Further, you'll be able to sell stock immediately to pay things like taxes. TL;DR: pay off your $585k debt first. – Brythan Jul 10 '18 at 18:38
  • are the shares listed on a stock exchange option sin a listed company are a lot less risky – Neuromancer Jul 10 '18 at 22:27
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The suggested duplicate gives some great information, but here's some questions/points that pertain to your specific situation:

  • Do you know what the shares in the private company are worth? Selling private equity can be tricky, both financially and socially (your employers may see it as a lack of faith in the company)
  • Is there a way to sell the options directly? This may be "cleaner" than exercising and selling the stock, plus the options should be worth more than the difference between the stock price and the strike.
  • I treat stock and options received as compensation as if they were cash. Meaning, if you were given the equivalent compensation in cash, would you buy stock or options with it? I am guessing not. I would instead use it to accelerate your debt payments. Your gain should be calculated from the time the options vested, so unless there's bee a large change in price from that date there should be minimal tax consequences.
  • I don't know how to find the answers to these things, I'm afraid. – thumbtackthief Jul 10 '18 at 13:26
  • Does the company have a benefits department? They should be able to tell you what options you have. – D Stanley Jul 10 '18 at 13:41
  • @DStanley depends on the strike price i.e. what the OP pays and what the shares are worth I have some options in the uk where you made 3 or 4 times your investment – Neuromancer Jul 10 '18 at 22:27

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