investing options?

[atek3]

At my company we have an employee stock purchase plan.  15% of my salary is held in escrow acount and every six months it gets converted into company stock at a price of 15% below market.  The next purchase will happen Jan 1, 2006.  And I'll get several thousand dollars worth of company stock.  Normally I'd dump it immediately and take the 15% profit.  However, right now our stock price is really depressed and there may be "upside potential".  Then again the stock could plummet even lower.  I basically have three options

a) the simple option, sell immediately, take the 15% less capital gains.
b) more complicated, immediately purchase put options on my stock while holding onto it.
c) more complicated, sell stock immediately, purchase call options.

Which do you think I should do?  

atek3

[Paddy]

Depends on the company.  Check out these questions:

http://stocks.about.com/od/tradingbasics/a/Gutck030205.htm

http://moneycentral.msn.com/content/Investing/Startinvesting/P56525.asp

http://www.kiplinger.com/personalfinance/basics/archives/2002/11/fourquestions.html

15% is a pretty good discount, and you said the stock is currently depressed, which is the time to buy.  If you took the 15% profit, what would you do with it?  Invest it in another company or maybe a mutual fund?  But then, there would be a short term capital gain, so you wouldn't get the entire 15%, right?  I dunno.....just thinking this through.....

[Werewolf]

If you sell the stock immediately the tax rate you pay will be based on your current marginal tax rate and not the rate that capital gains are taxed at. To take the capital gains rate you must hold the stock for at least one year. Usually the personal tax rate is higher than the capital gains rate (the government wants you to hold onto the stock not sell it).

Buying puts and calls as a hedge is a good idea actually but is probably more trouble than it is worth. If you have a brokerage account most companies will automatically deposit the stock into your account. That way you can do a same day or next day sale and immediately realize your 15% gain. That's what I did at a previous employer but I had three kids and those deductions along with a mortgage interest rate deduction kept me in a marginal tax rate around 12% so it benefited me to sell instead of hold.

Without knowing who you work for advising you to sell or hold is a non-starter. If you think the company will still be around when you retire and that is 20 or so years away then holding onto the stock is usually the thing to do - especially if you plan to stay with the company and keep on accumulating its stock.

[The Rabbi]

It entirely depends on lots of factors.  Among them is how much of your net worth/retirement is invested in company stock?  Obviously if you work for GE that is not like working for Oracle.  Dollar cost averaging works wonders but the question is too vague to be able to be answered.

[Guest]

Are you diversified? (cash, equities, debt instruments, real estate, commodities, etc.)

Do you own any precious metals?

[atek3]

15% is a pretty good discount, and you said the stock is currently depressed, which is the time to buy.  If you took the 15% profit, what would you do with it?  Invest it in another company or maybe a mutual fund?  But then, there would be a short term capital gain, so you wouldn't get the entire 15%, right?  I dunno.....just thinking this through.....

Without knowing who you work for advising you to sell or hold is a non-starter. If you think the company will still be around when you retire and that is 20 or so years away then holding onto the stock is usually the thing to do - especially if you plan to stay with the company and keep on accumulating its stock.

The reason why I don't simply "buy and hold" is I work for a small pharma.  My company won't be around in 20 years, probably not even ten.  It will either prosper and be bought, or wither and fold, that's the way biotech is.  I'll probably be spending the money on tuition next fall in graduate school.  

I don't think the upside of lowered tax burden (by holding it for a year) is worth the risk.  Many of my co-workers lost small fortunes on our company stock a few years ago, so very few employees hold for the long term.

Are you diversified? (cash, equities, debt instruments, real estate, commodities, etc.)

Do you own any precious metals?

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It entirely depends on lots of factors.  Among them is how much of your net worth/retirement is invested in company stock?  Obviously if you work for GE that is not like working for Oracle.  Dollar cost averaging works wonders but the question is too vague to be able to be answered.

For the first time since college my net worth is approaching positive territory.  I've just finished paying off my student loans leaving me effectively debt free.  I'm 24, but don't have a 401k.  Which I don't think is unreasonable considering practically every nickle I earned beyond food, rent, and gas went to student loans.  

Not really diversified, my only "wealth" consists of guns, motorcycles, and cash.  I follow the mad max investment strategy... just kidding.

atek3

[Paddy]

Then take the money and run.  Consider the tuition expense an investment in your own equity.

[atek3]

thats pretty much what I was thinking.
The put/call option was to try and capture some of the short term potential upside.

[Guest]

If your barely in the black I would advise cash...or gold/silver bullion...for any funds not needed immediately. All other markets are tantamount to gambling for now.

[The Rabbi]

With gold approaching 20 year highs this hardly seems the time to buy bullion.

[Guest]

Hey! What kind of anarchist invests???

[The Rabbi]

Hey! What kind of anarchist invests???

Yeah.  But how many wealthy anarchists have you seen?

[Guest]

Hey! What kind of anarchist invests???

Easy...a Market Anarchist! Ba-da-bing!