Does anyone know anything about stock options?

[Minnie824]

I have a question about stock options. If you have, say 1000 shares of Company A's stock as a stock option, and at the time they were given to you, the stock was at $100. Then they get close to the expire date. If, at the expire date the value is at only $50, what happens? Do you just lose it all? Do you get to claim a loss on taxes? Or does it just go away, and its no type of exercised bonus?

 

[Bob Slydell]

What's the option price on them?

 

[Minnie824]

Well, for the example, say the option price is $100 and the current stock value is at $50.

 

[Galahad]

I don't think that most stock options are income until you exercise them. So you couldn't take a loss unless you exercised them and the price continued to decline. If the stock is really worth less than the option price then you are better off walking away from them unless you really think that the stock will rebound in the future.

 

[brerrabbit]

No harm, no foul. You don't exercise and you can claim no losses for tax purposes. If you did execute the options then you would own stock worth $50 that you bought for $100. If I recall correctly the IRS would not even grant you the ability to claim the lose in that scenario. You would have to sell the stock for $50 and then you would have a realized loss of $50. Even then you may not get to take the loss for tax purposes because you made an irrational economic decision. At best even if they did allow the loss you can only take up to $4,000 a year in trading losses and have to roll the rest forward and take on subsiquent returns. In the end if you want a tax deduction, just give the money you would have lost by exerscising the options to charity and take the right off there instead.

 

[Bob Slydell]

I don't think that most stock options are income until you exercise them. So you couldn't take a loss unless you exercised them and the price continued to decline. If the stock is really worth less than the option price then you are better off walking away from them unless you really think that the stock will rebound in the future.

Actually, the stock options aren't even taxable (except for some AMT considerations) when exercised. The tax implications don't come into play until the stock itself is sold. So if you don't exercise the options before they expire, there's no tax implications at all.

 

[mickeyfan1]

THe option is allowing you to purchase the stock at the stated value. I recived a lot of options when I worked at a large corporation. The last group I got was priced at 5$52.00. THe day I got it the stock was trading at 48. I would have had to pay more than the stock was worth to exercize the option. I have let it sit, and not the company has been bought, and the oprions were reissued at $37.00 or so, with the stock trading at just over 24. Still not a good deal.

The best options are those that are at lower than or equal to market value. If they are lower and you buy, it's like getting the stock on sale. But when you sell, you will owe capital gains on the profits, or you can take a capital loss if the price drops lower than what you paid.

 

[Minnie824]

Thanks everyone! Thats the clarification that I needed.

 

[Galahad]

Actually, the stock options aren't even taxable (except for some AMT considerations) when exercised. The tax implications don't come into play until the stock itself is sold. So if you don't exercise the options before they expire, there's no tax implications at all.

Right. Sorry, yes. Two different transactions. I've done it two ways in the past. I've exercised options and kept the stock and also have excerecised options in a transaction that sold them immediately, meaning that I was taxed right away.

 

[Viking]

My company -an American business- gave us stock options several years ago. Those stocks were bought by the company at about $37 and every employee got 100 every year for three years. The stocks still belonged to the company, but after three years of holding those 100 stocks every employee could decide wether to hold them or to sell them within the next seven years. Our profit was the difference between aforementioned 37 bucks and the price at the date of sale. When the stocks were at 37 or below: No profit, but also no loss, because they didn't belong to you. After three years the stock stood at $34. Fortunately our parent-company was taken over by another one half a year later. When the take-over was announced our stock soared to well above $80 Additionally the company announced that even though package 2 and 3 weren't yet elegible for sale according to the original rules, we were allowed to sell: Everybody cashed in $15,000