ESPP Purchase/Sale Specifics

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
dudeman135
Posts: 37
Joined: Mon Sep 12, 2011 1:27 pm
Location: Ponte Vedra Beach, FL

ESPP Purchase/Sale Specifics

Post by dudeman135 » Fri Jul 13, 2018 10:47 am

Just received an email about our new ESPP going into effect Sept 1. Initial period will be Sept 1-Dec 31, but it will be regular 6 months subscription periods thereafter.

Details:
15% Discount off either the price on the first day or the last day of the Offering Period, whichever closing price is lower
2 Subscription Periods/Year - Jan -June and July-Dec
Contribute 1%-10% of salary
Shares are deposited immediately after close of subscription period and can be sold any time

Having been through an Enron type situation before, I would definitely only buy, sell immediately and rinse/repeat. My question is on the specifics of the purchase and sale. Here is what it says about purchase date...

Purchase Date: This is the same date as the Expiration Date (aka the last business day of an Offering Period). Stock will be purchased as soon as administratively possible after this date and deposited to your brokerage account at E*TRADE.

So if 12/31 is the last day of the offering period and a day the market is open, am I correct in assuming the shares would be placed in the account after the market closed on that date and then you'd be able to sell at the open or possibly pre-market on the next business day?

My company stock isn't typically one that would move like a high flying tech stock in any given day, but I also would like to lock in that gain/sale immediately vs taking on any additional risk. I'm just curious on the specifics of that.

Since the same idea may apply for several thousand employees (22k total) all trying to do the same thing at the same time, has anyone seen a situation where the first trading day of the New Year has resulted in a gap down situation which could erode a good portion of that potential 15% or more gain? Typical share volume per day is 5 million.

Just trying to consider all the factors, as this would be my first ESPP plan purchase. Thanks!

User avatar
mhc
Posts: 3831
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: ESPP Purchase/Sale Specifics

Post by mhc » Fri Jul 13, 2018 11:47 am

Don't over think it. It is simple. Contribute the max amount and sell when the share show up in the account. Include it when you do your taxes. Even if everyone sold their shares together, it won't affect the price to the extent that you should care.

I sell immediately every quarter. Sometimes it results in a small cap gain and sometimes a small cap loss. No big deal.

PVW
Posts: 495
Joined: Mon Dec 29, 2014 11:01 am

Re: ESPP Purchase/Sale Specifics

Post by PVW » Fri Jul 13, 2018 11:57 am

dudeman135 wrote:
Fri Jul 13, 2018 10:47 am
Since the same idea may apply for several thousand employees (22k total) all trying to do the same thing at the same time, has anyone seen a situation where the first trading day of the New Year has resulted in a gap down situation which could erode a good portion of that potential 15% or more gain? Typical share volume per day is 5 million.
Presumably your company ESPP details are public knowledge and stock traders will know the dates. The market is efficient enough to smooth out any selling pressure generated by the new ESPP shares.

Jack FFR1846
Posts: 8341
Joined: Tue Dec 31, 2013 7:05 am

Re: ESPP Purchase/Sale Specifics

Post by Jack FFR1846 » Fri Jul 13, 2018 12:21 pm

Etrade has a future elections page. You can select immediate sale or with hold shares for taxes. Both of these will immediately sell the shares upon vest at the earliest possible time. They'll then take about 4 business days to settle and at that point, you can transfer the money to your own bank account. This is exactly what I do with my ESPP. As close to zero risk as is possible.
Bogle: Smart Beta is stupid

Topic Author
dudeman135
Posts: 37
Joined: Mon Sep 12, 2011 1:27 pm
Location: Ponte Vedra Beach, FL

Re: ESPP Purchase/Sale Specifics

Post by dudeman135 » Fri Jul 13, 2018 1:00 pm

Jack FFR1846 wrote:
Fri Jul 13, 2018 12:21 pm
Etrade has a future elections page. You can select immediate sale or with hold shares for taxes. Both of these will immediately sell the shares upon vest at the earliest possible time. They'll then take about 4 business days to settle and at that point, you can transfer the money to your own bank account. This is exactly what I do with my ESPP. As close to zero risk as is possible.
Perfect, thanks a bunch!

annielouise
Posts: 367
Joined: Wed May 14, 2008 4:11 pm

Re: ESPP Purchase/Sale Specifics

Post by annielouise » Fri Jul 13, 2018 1:11 pm

Since it is your first time, be aware that the 15% discount is taxable income (salary). Most companies add it automatically to your paystub and take out income, SS and Medicare taxes. We had one that didn't and that was a bit of a pain.

Topic Author
dudeman135
Posts: 37
Joined: Mon Sep 12, 2011 1:27 pm
Location: Ponte Vedra Beach, FL

Re: ESPP Purchase/Sale Specifics

Post by dudeman135 » Fri Jul 13, 2018 1:13 pm

annielouise wrote:
Fri Jul 13, 2018 1:11 pm
Since it is your first time, be aware that the 15% discount is taxable income (salary). Most companies add it automatically to your paystub and take out income, SS and Medicare taxes. We had one that didn't and that was a bit of a pain.
Yeah I'm aware that would be taxed at the regular income rate, but good advice to check and see if it is added to your paystub or not.

Topic Author
dudeman135
Posts: 37
Joined: Mon Sep 12, 2011 1:27 pm
Location: Ponte Vedra Beach, FL

Re: ESPP Purchase/Sale Specifics

Post by dudeman135 » Mon Jan 07, 2019 11:11 am

Just wanted to follow-up, as it did not go exactly as I expected.

The ESPP purchase date was 12/31/2018, but the shares didn't end up in my account until Jan 7th.
On 12/31, the stock closed at 62.13 so the purchase price at a 15% discount was 52.81.

During the time I was waiting for the shares to hit my account, the company stock went as low as 60.02,
eroding some of that 15% gain.

According to the ESPP plan materials, here is how a sale during the first year works:
"Selling shares before the end of the IRS holding period is considered a “Disqualifying
Disposition”. The ordinary income that needs to be reported, even if you do not have a gain on
the sale of shares, is equal to the difference between the market value of the shares on the
Purchase Date and the discounted price at which you purchased the shares. For example, if the
Purchase Price was $65 and under the ESPP you buy at $55.25 (85% x $65), you recognize $9.75
as compensation income when you sell the stock in a disqualifying disposition even if you sell
the stock for less than $65."

So had I received the shares when it was 60.02 and sold, I would have had a 13.65% gain, but would
have had to pay ordinary income taxes on a 15% gain.

Luckily the overall market rallied on Friday along with the company stock and I was able to sell
the shares at the full 15% gain this morning, but there was more risk and a bit more stress than I
expected, not knowing the shares would take that long to hit the account. That and the recent
market volatility had moved the company stock more than normal as well.

I was expecting the purchase to happen on 12/31 and being able to sell on the next business day
on 1/2, but it was not that simple. All worked out in the end, but just wanted to post this update
to let folks know how it worked in my case, as there is definitely some risk to not getting the full 15%.

dcabler
Posts: 747
Joined: Wed Feb 19, 2014 11:30 am

Re: ESPP Purchase/Sale Specifics

Post by dcabler » Tue Jan 08, 2019 10:58 am

dudeman135 wrote:
Mon Jan 07, 2019 11:11 am
Just wanted to follow-up, as it did not go exactly as I expected.

The ESPP purchase date was 12/31/2018, but the shares didn't end up in my account until Jan 7th.
On 12/31, the stock closed at 62.13 so the purchase price at a 15% discount was 52.81.

During the time I was waiting for the shares to hit my account, the company stock went as low as 60.02,
eroding some of that 15% gain.

According to the ESPP plan materials, here is how a sale during the first year works:
"Selling shares before the end of the IRS holding period is considered a “Disqualifying
Disposition”. The ordinary income that needs to be reported, even if you do not have a gain on
the sale of shares, is equal to the difference between the market value of the shares on the
Purchase Date and the discounted price at which you purchased the shares. For example, if the
Purchase Price was $65 and under the ESPP you buy at $55.25 (85% x $65), you recognize $9.75
as compensation income when you sell the stock in a disqualifying disposition even if you sell
the stock for less than $65."

So had I received the shares when it was 60.02 and sold, I would have had a 13.65% gain, but would
have had to pay ordinary income taxes on a 15% gain.

Luckily the overall market rallied on Friday along with the company stock and I was able to sell
the shares at the full 15% gain this morning, but there was more risk and a bit more stress than I
expected, not knowing the shares would take that long to hit the account. That and the recent
market volatility had moved the company stock more than normal as well.

I was expecting the purchase to happen on 12/31 and being able to sell on the next business day
on 1/2, but it was not that simple. All worked out in the end, but just wanted to post this update
to let folks know how it worked in my case, as there is definitely some risk to not getting the full 15%.
It's almost as if we work for the same company - main clue that we don't is that our stock prices aren't the same. :D
At every other company where I've worked, the shares were in my E-trade account on the opening of the next business day. For whatever reason, my current company takes anywhere from 3 to 7 days. And with the market as volatile as it currently is, the 15% discount could easily be wiped out by the time the shares show up. Aggravating for those of us who want to sell as soon as possible.

lstone19
Posts: 256
Joined: Fri Nov 03, 2017 3:33 pm

Re: ESPP Purchase/Sale Specifics

Post by lstone19 » Wed Jan 09, 2019 2:12 pm

dudeman135 wrote:
Mon Jan 07, 2019 11:11 am
Just wanted to follow-up, as it did not go exactly as I expected.

The ESPP purchase date was 12/31/2018, but the shares didn't end up in my account until Jan 7th.
On 12/31, the stock closed at 62.13 so the purchase price at a 15% discount was 52.81.
Interesting. My wife's employer has an ESPP administered by E*Trade and the shares are reliably in the Stock Plan account (they go there, not the related full brokerage account) within a few hours of market close on the last day of each half ready to sell as soon as the market opens on the first day of the new half.
According to the ESPP plan materials, here is how a sale during the first year works:
"Selling shares before the end of the IRS holding period is considered a “Disqualifying
Disposition”. The ordinary income that needs to be reported, even if you do not have a gain on
the sale of shares, is equal to the difference between the market value of the shares on the
Purchase Date and the discounted price at which you purchased the shares. For example, if the
Purchase Price was $65 and under the ESPP you buy at $55.25 (85% x $65), you recognize $9.75
as compensation income when you sell the stock in a disqualifying disposition even if you sell
the stock for less than $65."

So had I received the shares when it was 60.02 and sold, I would have had a 13.65% gain, but would
have had to pay ordinary income taxes on a 15% gain.
But what they didn't say is that the ordinary income is added to your basis in the stock so when you sell for less than market value on the purchase date, the difference is a short-term capital loss.
Jack FFR1846 wrote:
Fri Jul 13, 2018 12:21 pm
Etrade has a future elections page. You can select immediate sale or with hold shares for taxes. Both of these will immediately sell the shares upon vest at the earliest possible time. They'll then take about 4 business days to settle and at that point, you can transfer the money to your own bank account. This is exactly what I do with my ESPP. As close to zero risk as is possible.
My wife's plan has no such option. It must be something that employers can allow if they wish. That said:
dudeman135 wrote:
Fri Jul 13, 2018 10:47 am
Since the same idea may apply for several thousand employees (22k total) all trying to do the same thing at the same time, has anyone seen a situation where the first trading day of the New Year has resulted in a gap down situation which could erode a good portion of that potential 15% or more gain? Typical share volume per day is 5 million.
mhc wrote:
Fri Jul 13, 2018 11:47 am
Even if everyone sold their shares together, it won't affect the price to the extent that you should care.
I'll differ, at least regarding my wife's employer, as there is a noticeable dip in the stock (probably 2 to 3% after allowing for what the market is doing that day) right after market opens on the first day of the half. The stock usually recovers in an hour or two after opening. Probably depends on how widely traded the stock is. My wife's employer average volume is less than 200,000 shares per day. Her shares alone each half are about 0.5% of the average volume.

Topic Author
dudeman135
Posts: 37
Joined: Mon Sep 12, 2011 1:27 pm
Location: Ponte Vedra Beach, FL

Re: ESPP Purchase/Sale Specifics

Post by dudeman135 » Wed Jan 09, 2019 2:41 pm

Interesting. Thanks for the additional comments.

So the bottom line is “your situation may vary” even if your ESPP also uses eTrade.

inbox788
Posts: 5764
Joined: Thu Mar 15, 2012 5:24 pm

Re: ESPP Purchase/Sale Specifics

Post by inbox788 » Wed Jan 09, 2019 7:05 pm

dudeman135 wrote:
Fri Jul 13, 2018 10:47 am
Since the same idea may apply for several thousand employees (22k total) all trying to do the same thing at the same time, has anyone seen a situation where the first trading day of the New Year has resulted in a gap down situation which could erode a good portion of that potential 15% or more gain? Typical share volume per day is 5 million.
Don't worry about it.

If 22k employees making $100k/year all bought 10% max of the ESPP, that's $220M. If the stock price is $100, that's 2.2M shares. It might mean more if the price were only $10, but realistically, I doubt 100% of employees fully participate 100% of the time, and maybe an overall 10% of maximum potential is more likely, yielding similar impact. And the likelihood of everyone all liquidating a years holding in the exact same day is also very remote. Volumes of 2-3X happen regularly and often only involve a few % moves more than usual, so even if it were happening, not a shocker.

Post Reply