Share this Page URL

Lesson 7. When to Exercise Your Options > What Are Your Options? - Pg. 33

When to Exercise Your Options 33 · You need the money to meet short-term financial needs. --Obviously, if you are having trouble making ends meet, you can put the cash to good use. · You want to pay off high-interest debt. --High-interest debt can drain your bank account and defeat any long-term financial plan. Paying off high-interest debt is one of the best investments you can make. You can then invest the money formerly used to pay the debt holder. · You believe the company has no future. --Exercising your options and immediately selling the stock makes sense if you believe the company is in trouble or headed that way. You might also consider looking for a new job. · You plan to leave the company soon. --Many employee stock option plans require you to dis- pose of your options when you quit or retire. You may have up to a year if you have to quit because of a disability. Check your plan for its particular details. If you know you are leaving, it may make sense to cash out now, rather than wait until the last minute. Tip The option agreement should spell out what happens to your options when you leave the company. If you work for a private company, the rules will probably be different. See Lesson 11, "Options and the IPO," for details. · You own a lot of the company's stock already. --It is not a good idea to have too much of your portfolio in one stock, as I discuss in Lesson 3, "An Investing Primer." You can invest the cash in other stocks or mutual funds that will help diversify your portfolio. · There are tax consequences. --I will discuss specific tax issues in Lesson 9, where you will see there are tax circumstances where it makes more sense to cash out than choose other possi- bilities. · You want to do something nice for someone you care about. --There are many good reasons to invest the proceeds from the stock sale in one or all of the preceding reasons. However,