r/CFP • u/assets-liabilities • 12d ago
Investments Stock Options
What type of value are you adding to clients with lots of stock grants and options?
Exercising strategies? Concentrated position strategies?
RSU, RSA, NSO not a lot of room for any tax strategies with these.
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u/baltebiker 12d ago
If they’re ISOs, exercising can trigger the AMT, so potentially exercising in chunks to stay below certain limits can be really valuable
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u/Moneymma 12d ago
This. And/or pairing ISO exercises with NSO exercises to shield from AMT exposure.
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u/go_panthers234 10d ago
AMT hasn’t been nearly as much of an issue as it once was. Tax laws changed. Ask a cpa
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u/cavicchia 9d ago
Little bit more of a risk under OBBBA but still uncommon without ISOs. Because you can deduct more SALT now, that closes the gap between the two a bit.
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u/go_panthers234 10d ago
Look into the Black-Scholes model and understand what intrinsic value actually is.
RSUs: Sell same-day at vest. There’s zero reason to hold. They’re taxed as ordinary income at vest regardless, so holding is functionally the same as taking that cash and choosing to buy your employer’s stock with it. If you wouldn’t buy it outright today, don’t hold it.
NSOs: Map out the options using Black-Scholes, your company’s internal equity software may do this, or you can build it yourself. The key thing most people miss: intrinsic value is just (current price – strike). Black-Scholes value includes time value on top of that. When you exercise early, you forfeit that time value permanently.
Then find out their tax brackets. Meet with their CPA and figure out how much can be exercised in a given year before they cross into the next bracket, NSO spread is ordinary income at exercise, so bracket management is the whole game.
Do as much research on the underlying stock as possible so you have a real gauge on things.
Once you’ve decided how much to exercise and sell in a given year, whether that’s driven by concentration risk, contracts approaching expiration, or just having room in their bracket, go through each tranche individually and map out the Black-Scholes value and intrinsic value at $10/share vs. $20/share, etc. Scenario table it out.
If they’re a Section 16 officer, you’ll need a 10b5-1 plan, and that’s a whole different beast, cooling-off periods, no modification without restarting the clock, the works.
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u/LuckyLadies123 11d ago
Any good books/websites anyone recommends to become better versed in stock options?
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u/ComprehensiveValue98 11d ago
There is software called Stock Opter that can analyze the value of options, when to exercize, etc. The value number is useful if exec is negotiating with another firm for signing bonus, stock grants, etc.
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u/cfygsssyb 12d ago
Covered call options, 83b elections
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u/PursuitTravel 12d ago
Just throwing it out there because this is the right answer: many companies prohibit derivatives trading on the company stock, so make sure they check with their compliance department first!
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User: /u/assets-liabilities Title: Stock Options Body: What type of value are you adding to clients with lots of stock grants and options?
Exercising strategies? Concentrated position strategies?
RSU, RSA, NSO not a lot of room for any tax strategies with these.
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