Here comes the first financial challenge for the new decade: employee stock option. My employer has ceased to grant employee stock option (ESOP) since 2005, but I still have some stock options left from the old days, the most recent batch will expire in February 2011. With the underlying stock hitting all-time highs since the global financial crisis, it's good time to decide what to do about it.
The basic parameters:
Stock Option Strike Price: $26.4375
Expiration Date: February 12, 2011
Price of Underlying Stock: about $31
The first option is of course to cash it out now. At the current price of $31, my gross proceeds will be ($31 - $26.4375) x 2,222 = $10,138.
10 grand is still a good chunk of change, except for the fact that I'll be imposed a marginal tax rate of 45% thanks to the local tax system. So my net proceeds will be $10,138 x (1 - 40%) = $6,083.
Getting the time right for exercising the option is tricky though. Every dollar increase on the stock price will add $1,333 after tax to our checking account, but it will cut the other way too. If the stock retreats to where it was merely two months ago, the value of these options will go down to zero.
Honestly, I'm confident on neither the future of the stock nor the future of world economy. I believe the financial crisis is far from over and there are more downside than upside from where we are for the stock market.
So should I cash out now or have other ways to squeeze more than $6,000 from these options? I'm analyzing an option now but like to hear if you guys have some good recommendations first. Do you have any advice?
(Please check out Part 2 and Part 3 of this discussion.)