Everyone wants to feel confident in their decision-making, especially when it comes to your money. If you’re not 100% confident in your stock options strategy, here are 3 things to consider.
1. Align with your overall financial strategy
Just like other investment decisions, what you do with stock options should align with your objectives and overarching long-term strategy. Think about your timeline, level of risk, and diversification. If your stock options strategy differs from your other investments, you may need to re-evaluate it.
2. Understand leverage
While many tech professionals tend to view their stock options strategy solely focused on minimizing tax liability, this is not necessarily the best investment strategy. Minimizing tax impact is important, but it doesn’t always give you the highest lift, and potential returns can be left on the table.
Understanding leverage is also important in this conversation. As the strike price and market price get further apart, the greater the spread and better the leverage. The highest gains often come from selling options that have the greatest leverage.
3. Differentiate between non-qualified stock options (NSO) vs. incentive stock options (ISO)
Do you know if you have been granted NSO or ISO options through your employer?
ISOs are known for being associated with potentially lower tax liability as they are taxed at your capital gains rate, whereas NSOs are treated like normal income therefore you will pay ordinary income tax rates at the time you exercise. It’s a good idea to look into what types of stocks you have and how you’ll be taxed, so you aren’t surprised by the tax liability later. Furthermore, if you do have ISOs, you’ll want to be strategic about long-term capital gains rates vs. short-term.
If you aren’t sure how the above considerations apply to your situation, be sure to reach out to a financial advisor to discuss your financial planning and investment strategy. They’ll help you gain clarity and feel more confident with your stock options strategy.
If you want to take that next step, MA Private Wealth is here to help. Be sure to contact us to start the conversation.
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