Has anyone ever had their company go public and regret exercising at strike price? My company is likely to have an IPO within the next few years. Effectively asking when we do the s1 filing should I almost certainly be exercising as much of my options as I can? Also do people remember how their fair market value jumped on the lead up to IPO? #ipo
Huge risk to exercise options at strike price. Mainly for 2 reasons: 1) you don't know if the company will actually be successful and make it in the big leagues which will result in a huge payday and 2) exercising options is considered, in most jurisdictios around the world, a taxable event, as you will now hold an asset; stock. So you will pay tax on a promise that the value during IPO will be higher than today. The only reason I could see this makes sense is if you have a very high conviction the company will make it, inside knowledge that the price will significantly increase over the short amount of time and you have enough cash to cover for the strike price purchase and your tax expense. Another way to look at it is assessing the worst case scenarios in both cases. If you don't exercise now, your worst case scenario is that you make less money if you exercise now, the worst case scenario is losing money, and in some cases it could be significant. Imho, not worth it
This thread has lots of strange answers to "Has the stock price ever been lower than strike price?" The answer is 'yes'. This is not uncommon. When you are awarded options at a time when the company appears to be doing well, then the sentiment about the company becomes less favorable causing the valuation to decrease, the stock price can go below the strike price. In this scenario, your stock options are virtually worth zero, and exercising them would be a net loss -- you'd be better off just not exercising and waiting for the stock value to go back up.
within the next few years = never. if you are waiting for s1, the answer is you certainly should *not* be exercising at that time.
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I feel like this is super dependent on a company and it's individual prospects, no? Do you think your company will have high growth potential post-IPO, or not?
Not to mention the terms of the IPO/spac merger/direct listing/etc. For example it’s not uncommon for issued options to convert to RSUs (often based on some calculation between fair market value and strike price) automatically as part of the transaction