Loan for stock options

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Cappy361
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Loan for stock options

Post by Cappy361 »

Would you buy company stock options with a loan that charges 1.75 percent apr?

Or dip into cash emergency fund?
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TomatoTomahto
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Re: Loan for stock options

Post by TomatoTomahto »

Cappy361 wrote:Would you buy company stock options with a loan that charges 1.75 percent apr?

Or dip into cash emergency fund?
I would never buy company stock (or options). When we vest in company stock, we sell as soon as compliance allows it.

Investing in company stock is 180 degrees removed from diversification. Presumably, if the company does well, you'll do well regardless. OTOH, ...

IF you held a gun to my head and told me that I HAD to buy it, I would use the 1.75 APR rather than using emergency cash (it's not an emergency, is it?).
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Cappy361
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Post by Cappy361 »

What if it's a privately held company with a long history?
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retiredjg
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Post by retiredjg »

I would not do either, no matter how good the investment looks. If you cannot afford it....you can't afford it.
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roymeo
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Post by roymeo »

Options in a private company....

Buy them only when you have to.

If the company sells and they become worth something, your options still exist. If the company sells and they become worthless, you're not out anything. (That happened to me at my last company.) If you're staying with the company, there's no reason to add to your risk. I know several of my ex-coworkers who'd left and bought their options were burnt when we finally sold the company and the common options were worthless.

If you're leaving/laid off, etc. then you may want to buy the options you have on the table--maybe someday they'll be worth something, maybe not. It depends on how much realistic gain there is--are the options so juicy that you'd definitely buy the stock at that price knowing you may lose it all? Many of those burnt coworkers were right that when they left our future looked good--but then a deal fell through and a year later our interest was going to need to be paid and that would eat all our revenue.

If you do buy, there's a huge blackhole of how you price those private-and-not-yet-traded options....I know that made it easy for me to not even consider it while I was still working there.


I did once take out a loan for my options from a public company--and sweated it pretty hard for a couple of months as I tried to pay rent and student loans and this loan. I was so sure the stock had to go up--I mean they just laid off 1/2 the company, how could it not still keep going up? Luckily the company sold at higher than my buy price so the decision was made for me--I think I came out ahead about the price of a pizza.

roymeo

---

Edit to add:

So my answer would be "no, I wouldn't even consider either unless I was up against some deadline that required it. And then I'd think long and hard about how likely these options were ever going to turn into stock that was worth more than my buying costs."

roymeo
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TomatoTomahto
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Post by TomatoTomahto »

Cappy361 wrote:What if it's a privately held company with a long history?
Don't let greed make you act stupidly.

I had a boss, a CIO, who took part of his bonus in Drexel Burnham Lambert shares a few weeks before it went under. Not a stupid man, but he was greedy and wound up looking very stupid. He was a relative "insider" but he had no idea what was going on.

Listen, in the end, you either believe in diversification or you don't. You either believe that your company doing well will result in your doing well absent buying options or not.

If I were a single 21-year old, maybe. If it were $10k of "loose money," maybe, but I wouldn't consider taking a loan or dipping into emergency funds.
Wagnerjb
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Post by Wagnerjb »

Claude wrote:
Cappy361 wrote:What if it's a privately held company with a long history?
Don't let greed make you act stupidly.

I had a boss, a CIO, who took part of his bonus in Drexel Burnham Lambert shares a few weeks before it went under. Not a stupid man, but he was greedy and wound up looking very stupid. He was a relative "insider" but he had no idea what was going on.

Listen, in the end, you either believe in diversification or you don't. You either believe that your company doing well will result in your doing well absent buying options or not.

If I were a single 21-year old, maybe. If it were $10k of "loose money," maybe, but I wouldn't consider taking a loan or dipping into emergency funds.
I agree with Claude 100%. Unless office politics dictate that you buy the options, just say NO.

Best wishes.
Andy
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TomatoTomahto
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Post by TomatoTomahto »

That's a good point Andy. If the purchase/non-purchase would be known in the office, and if it is "expected," then OP can consider buying the minimum necessary to be a "team player." OTOH, if that's the case, maybe a company that makes you pledge allegiance this way is not where you want to be working ;) .
bond50
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Post by bond50 »

Cappy361 wrote:What if it's a privately held company with a long history?
I really wonder how this company is managing to sell you stock options. Generally, private equity can only be sold to accredited investors. I assume that if you were accredited then you wouldn't need a loan. Something doesn't add up.
xerty24
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Post by xerty24 »

bond50 wrote:I really wonder how this company is managing to sell you stock options. Generally, private equity can only be sold to accredited investors. I assume that if you were accredited then you wouldn't need a loan. Something doesn't add up.
There are exceptions from the accreditation requirements for employees.
bond50
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Post by bond50 »

xerty24 wrote:
bond50 wrote:I really wonder how this company is managing to sell you stock options. Generally, private equity can only be sold to accredited investors. I assume that if you were accredited then you wouldn't need a loan. Something doesn't add up.
There are exceptions from the accreditation requirements for employees.
Yes, but they only apply to employees at the "c" or vp level
and I assume the OP is not there yet.
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roymeo
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Post by roymeo »

Funny, last private firm I worked for offered options to every full time employee.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo
bond50
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Post by bond50 »

roymeo wrote:Funny, last private firm I worked for offered options to every full time employee.
Were they given stock options which vested upon service with the company or did the company outright sell such options to every full time employee? There's a big difference in those two scenarios.
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Cappy361
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Post by Cappy361 »

It's a privately held company and it's probably more like being offered shares into ownership. They don't even call it stocks but instead interests. Sorry typing from my phone.

I'm torn because the greed in me says BUY. This will be my second offer due to increased responsibilities and the previous has had some nice gains with excellent dividends.

The financials are not disclosed to public so I don't feel comfortable of releasing details about the company.
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Post by kappelmanm »

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Cappy361
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Post by Cappy361 »

I'm sorry but I probably used the wrong term "options". It's more like offering a chance for ownership in the company.
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roymeo
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Post by roymeo »

bond50 wrote:
roymeo wrote:Funny, last private firm I worked for offered options to every full time employee.
Were they given stock options which vested upon service with the company or did the company outright sell such options to every full time employee? There's a big difference in those two scenarios.

Vested.


But I've been discussing options, looks like the OP's updated what this was all about, and it's not options.
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roymeo
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strangers in the net, exchanging guesses, they were stranger

Post by roymeo »

Cappy361, its hard to offer any advice when we're not really sure what it is you're being offered.

Though from what you've said, I still stick by what I've said: If these 'things' are a open-ended offer to buy some 'otherthings' at a date of your choosing and especially if you can't sell them at a date of your choosing and they may lose some or all of their valie, then why purchase them at all while the window is open?

If you were being laid off or changing employers, then you've actually got a time-clock to run up against. But if the window's going to stay open for the next 4 years as long as you're with them and they're still private, what are you thinking you are gaining?

Again, maybe these are Schedule K-1 shares or something that may pay a dividend or somtehing, but you've not made that clear. Come back (and maybe start a new thread) when you're at a computer and have your info together and maybe someone can help you....Right now you're not just getting financial advice from strangers on the internet, you're getting wild guesses at your situation from strangers on the internet.
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roymeo
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Post by roymeo »

kappelmanm wrote:In my experience, stock options should only be exercised with the intent to sell the stock right away.

I worked for a small tech company who made lots of options available but you were restricted as to when you could sell them. People were taking out seconds on their homes or borrowing money from friends and family. The hype was so good coming from management that no one could resist it..

If you did not sell them in the same year then there were huge tax implications. Many people exercised options for a couple dollars a share when the stock was over $30 a share. Then they held them into the next tax year and had huge Alternate Minimum Tax due. Sometimes the taxes due were more than twice their annual salary.

And by then the stock were only worth $2.65 a share and they could not even sell them to recoup the money to pay the taxes.

There is a book named "Know your Options" which is a good reference on stock options. It saved me from making big mistakes.

It was so sad to see co-workers having to beg the IRS to let them make payments for years to come.

Michael
Stock Options For Dummies also basically says "sell them immediately. If you can't do that for whatever reason, set up a schedule and sell them ASAP (like within a year)." It also offers very little guidance for people who can't sell their stock cause it's still a private company, etc. though the 'cash out, stupid' message pretty much covers the case of buying something that is impossible to sell.

roymeo
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo
wander
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Re: Loan for stock options

Post by wander »

Cappy361 wrote:Would you buy company stock options with a loan that charges 1.75 percent apr?

Or dip into cash emergency fund?
No, I would not invest with borrowed money.
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