When is a good time to exercise your options?
Knowing when to exercise your options isn't easy. Here are some considerations to help you think about the risks and rewards of different strategies.
When to exercise - the tax implications
Exercising your options at different stages of the company's development may impact the tax you are required to pay. Exercising early in a company with an upward trending share price may result in paying significantly less tax.
What if you exercised your options and then the company's share price changed?
Before exercising your options make yourself aware of your tax liabilities by consulting with an accountant or tax advisor.
Investing has risks
Investing is a risk. Here are some considerations:
Exercise price: How much is the exercise price?
Tax implications: What are the tax implications of exercising? (These vary by country.)
Financial stability: What if you can't recover the money spent on the exercise price and tax? What impact will this have on your financial stability and future prospects?
Short-medium term needs: Am I likely to need the money invested in the short-medium term? What if I can't access it (as there is no way to sell the shares)?
Risk of loss: What is the risk that I will lose all of my money?
Opportunity cost: Could I be invested in something better? Is there an opportunity cost associated with being tied up in this investment?
Portfolio weighting: What percentage of my total investment portfolio will this holding constitute? Am I happy with this weighting?
Timing of exercise: What are the potential risks and benefits of exercising early versus exercising later?
Unknowable risks: What are the potential 'unknowable' risks? Improbable and seemingly impossible things happen all the time.
Familiarity bias: Have I considered my own 'familiarity bias'?
Familiarity bias
The tendency to make investment decisions based on being familiar with the investment. Other more viable investment options may be overlooked in favor of what you think you know.
New Zealand tax law
See Inland Revenue's website for more information on employee share schemes (ESS) and taxation:
Disclaimer
The information on this website is provided for general information only. Orchestra Limited does not assume any responsibility for giving legal or other professional advice and disclaims any liability arising from the use of this information. If you require legal or other expert advice, seek assistance from a professional advisor.