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The Proper Strategy for Stock Option Sales
For many, stock options are awarded as a bonus or profit-sharing award. Each year more than 10% of the granted stock options go unexercised. Employees often sell their vested shares and miss out on potential future appreciation. Other mistakes include not protection gains after stocks have appreciated or waiting to the last minute to exercise their options. Tax considerations are a critical component of properly using your stock options. If you do not plan for taxes until they are due, you may end up with a large tax bill. In addition, options and Restricted Stock Units (RSUs) come with unique risks, and it is important to ensure that the portfolio holding your options is well diversified.
These considerations can be overwhelming; however, Johansen and Yau’s advisors are uniquely skilled at helping you manage your stock options most effectively. We do this by assisting you in creating a stock option/RSU selling strategy. To make this strategy, we look at several essential factors, asking specific questions, before deciding if selling your options is the best action. We specifically ask:
Perhaps the most critical component of an RSU selling strategy is understanding the tax treatment of your shares. It is essential to know:
If your stock’s value goes up from the time your RSUs vest and when you sell them, you will be responsible for capital gains.
When it comes to selling your options, there are several methods for doing so. You can sell them immediately, sell some, keep some, hold on to your shares, sell shares systematically, or use an exchange fund strategy. At Johansen and Yau, we can help you understand what approach is best for you and remove the mystery and confusion of owning stock options.