If you have an ESPP where you work...

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Tamales
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If you have an ESPP where you work...

Post by Tamales » Sun Aug 09, 2015 3:52 pm

(ESPP = Employee stock purchase program)
In your ESPP, how many days between the end of the subscription period and the quick sale date?

Where I work, it's 2 trading days. I checked the past 15 years of stock prices on the end of each subscription period and on the quick sale date, two trading days later. On average the stock dropped 1.4% over this 2-day period, and it dropped on nearly 80% of these 2-day periods over the past 15 years.

I wonder if this is a common trend (drop in price immediately following ESPP subscription periods) across stocks in companies who offer ESPPs. Is there a justifiable "market reason" this should happen? For a megacorp, it seems like the total of all share purchases at a 15% discount via ESPP would be a really small percent of the float.

Anyway, if I were an options trader, this seems about as good as probabilities get for short term trades. But I swore that off years ago, so I'm mainly just curious if it's common to have a drop over this short period and an explanation if so.

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tyler_cracker
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Re: If you have an ESPP where you work...

Post by tyler_cracker » Mon Aug 10, 2015 11:06 pm

Tamales wrote:In your ESPP, how many days between the end of the subscription period and the quick sale date?


none. the shares show up in my account at the end of day X; i sell them on day X+1.

I checked the past 15 years of stock prices on the end of each subscription period and on the quick sale date, two trading days later. On average the stock dropped 1.4% over this 2-day period, and it dropped on nearly 80% of these 2-day periods over the past 15 years.


my employer went public just a few years ago and started an espp a year after that so i have only four data points. by my eyeball there is no significant effect. however, my employer is far from a megacorp and the stock price is quite volatile.

I wonder if this is a common trend (drop in price immediately following ESPP subscription periods) across stocks in companies who offer ESPPs. Is there a justifiable "market reason" this should happen? For a megacorp, it seems like the total of all share purchases at a 15% discount via ESPP would be a really small percent of the float.


when i signed up for the espp, i wondered about this as well. some back-of-the-envelope math showed that even with widespread participation, the number of espp shares was dwarfed by the overall market cap and average daily trading volume.

as for a "market reason", my WAG is that the larger the company, the easier it is to learn when events like espp vesting occur and the more profitable it might be to take advantage of such an event. somehow i doubt that you're the first person to think of this "scheme" :).

my slightly-less-WAG is that there is so much noise in the data that the signal is phony.

hth!

madbrain
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Re: If you have an ESPP where you work...

Post by madbrain » Tue Aug 11, 2015 4:49 am

Tamales wrote:(ESPP = Employee stock purchase program)
In your ESPP, how many days between the end of the subscription period and the quick sale date?


Usually about 4-5 days. On one occasion this year it was 2 weeks, clearly some screwup.

Where I work, it's 2 trading days. I checked the past 15 years of stock prices on the end of each subscription period and on the quick sale date, two trading days later. On average the stock dropped 1.4% over this 2-day period, and it dropped on nearly 80% of these 2-day periods over the past 15 years.

I wonder if this is a common trend (drop in price immediately following ESPP subscription periods) across stocks in companies who offer ESPPs. Is there a justifiable "market reason" this should happen? For a megacorp, it seems like the total of all share purchases at a 15% discount via ESPP would be a really small percent of the float.

Anyway, if I were an options trader, this seems about as good as probabilities get for short term trades. But I swore that off years ago, so I'm mainly just curious if it's common to have a drop over this short period and an explanation if so.


You can't usually trade market options in the stock of your own employer, this is usually prohibited by insider trading policies.

My employer's ESPP only has a 5% discount to the trading price on the last day of the subscription period. It's happened twice in 4 years that the stock lost more than 5% before the shares were in my account and could be sold for at least the purchase price. This is a Megacorp, too.
I don't know if it's a coincidence, but I only shoot to try to capture the 5% discount ASAP and I can say that I haven't always succeeded. The stock price does seem to frequently drop right after the ESPP purchase. I held the shares for a couple of months once just to make the 5%.
Overall the ESPP is only netting me a 3 digit amount after taxes annually, still better than 0, but I seriously wonder if it's worth the time.

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DaftInvestor
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Re: If you have an ESPP where you work...

Post by DaftInvestor » Tue Aug 11, 2015 6:18 am

I have always been able to trade the very next day with the 2 companies I have had this benefit.

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