We strongly recommend you review your vested stock options before year end for possible exercise.
Here are a few reasons why:
1. The final quarter of the year has historically been an excellent time for appreciation in the capital markets. Selling high always sounds easy, but it is often hard to do, especially with the company you work so hard for and often become slightly emotionally attached to as well. Seasonally, the end of the year may be a good time to review and possibly sell a portion of your options.
Stock Option Review Time
2. Taxes are going up. While we cannot predict where rates will end up at this time, we feel strongly that rates will go up. Recall many stock options flow through to your ordinary income or end up as a short term gain. Rarely do stock options gain a favorable tax bracket treatment and with many tax brackets rising, it might be a good time to review your option exit strategy. We never recommend letting the tax tail wag the investment dog, but this is one of several items to consider and review at the current time.
3. Capital Market expectations are not extreme at this time or looking into the near future. With our country coming out of a very deep recession, labor pains, and the above mentioned tax increases, extremely high flying capital markets at this stage of the recovery may not be in the cards.
In closing, we wanted to mention an interesting saying; “Stock options are a form of compensation, remember to carefully manage them this way, they are not given to you as a present to never open/sell. Most stock options have very little strings attached and never know your feelings about them.”
Please see our Q 4 2010 Newsletter for greater details including some of basic rules of handling company stock options.
Have A Great Day!
JK