Diversify or derisk unvested equity?
Recently went through an acquisition. Looking for strategies to reduce risk of having so much of my compensation tied to company performance. Base is about 20% of TC, closer to 15% this week. RSUs are about 75%, closer to 80% this week. I see people celebrating the rise of the price. It's exciting. But maybe that's just temporary. I'd happily give up some potential upside in exchange for reduced risk of downside. But company policy prohibits trading derivatives of our stock, so I can't reduce risk by buying puts. Are there legal, permissable strategies to reduce risk?
If you say “exciting” in the stock market, your judgement is fucked and you’re going to get fucked. It should be boring and analytical. I saw idiots hold PayPal from $100 up to $300 and not sell anything all the way back down g to $60. When you own something, you have ownership bias. You usually can’t hedge against your company stock, but you can hedge with a security that has high beta to your ticker. They move together, generally. Here’s AVGO for the last three years. The highest on this list are ETFs that actually hold AVGO in their holdings. Different companies have different rules around those, so worth checking.
Clearly a noob here, so I want to make sure I understand. Is the idea to buy JAN-2025 SOXX puts at like $450-500? Then if those will be ITM, and I'd sell them to offset any losses? And if there's no drop, I'm only out the premium ~$10 premium? So I'm paying like 1.5% in "insurance" to protect myself from more than a 30% drop?
Yeah that’s the idea. It doesn’t have to be in the money for premium to spike significantly either. I actually do this with my retirement portfolio and you’ll SIGNIFICANTLY outperform the SPY going this route which is barely hands on. There payout from the insurance will give you more money to buy low. Also, you can sell OTM covered calls to offset the premiums a bit. On a retirement account, you don’t have to worry about getting assigned because you won’t have any tax penalty. You can just buy in again. Your only loss will be the gains between when you hit assigned and when you got back in.
Maybe look at other stocks that have a very strong correlation.
U can look into exchange funds or Charitable remainder trust. These allow u to exchange your company share for a diversified portfolio. The tax event is deferred.
AFAIK at most places you can't bet against your employer's stock AKA hedging.