[jpmattia]

> Here's one situation where it is very different.

Good god, no it is not different.

When the internet bubble collapsed in 2000, it literally bankrupted some people who had been compensated with stock options because of taxes. Exercising the options not only had resulted in greater income, but it caused AMT to kick in.

Moreover, some of the exercised options yielded stock that was still in lock-up due to IPO agreements. (People were anxious to start the long-term capital gains clock.) Shares plummeted even before they could be sold to pay off the taxes due.

The moral of the story is: Make sure to set aside money (liquid, USD) for taxes if you get hit with a sudden windfall. (edit addition, JumpCrisscross comment below has it right.)

Here's a couple of links to that history:

https://www.chicagotribune.com/sns-tech-taxes-story.html

https://www.mercurynews.com/2008/11/10/rescue-bill-offers-re...

[JumpCrisscross]

> When the internet bubble collapsed in 2000, it literally bankrupted people who had been compensated with stock options

Best practice is to sell stock sufficient to pay for taxes when exercising options. (Same for workers subject to U.S. taxation being paid in a foreign currency.)

[nostrademons]

Alternatively, you can sell a covered collar that protects your downside enough to know that you'll have the cash on hand come tax time. This limits your upside somewhat, but usually less than selling the stock outright. Mark Cuban famously used this strategy to protect his Broadcast.com payout under lock-out.

https://www.acceleratedfi.com/real-world-options-example-how...

(Check the details of your contracts with an attorney and financial advisor; I've heard that some lock-outs now explicitly forbid trading in derivatives of the stock to prevent doing what Cuban did. With financial engineering being as advanced as it is, though, it's always possible to create a "synthetic" derivative that is nearly guaranteed to have the same value as a particular options strategy without mentioning the particular asset involved.)

[H8crilA]

Trading options against employer's stock may be forbidden by insider trading policy. It was in my previous job (along with shorting, and only trading during trading windows). Can't say I disagree with such policies.

Other than that yeah, get a collar or just straight up buy some puts. Or like others recommended - sell some % instantly and put in high grade bonds, or a savings account. Forgetting taxes is a big mistake.

[pault]

Isn't the whole point of the story that they weren't allowed to sell when they exercised their options?

[JumpCrisscross]

> Isn't the whole point of the story that they weren't allowed to sell when they exercised their options?

The story most applicable to cryptocurrencies is the one where the stock was publicly traded [1]. Those exercisers chose not to sell.

(With respect to ISOs for private stock, yes, it's different. Best practice is not to exercise until you have a plan for paying taxes. This could be lining up a loan or a secondary sale, or only exercising what you can pay for.)

[1] https://www.chicagotribune.com/sns-tech-taxes-story.html

[fortran77]

I chose NOT to exercise options and let them simply expire because they will illiquid and I didn't expect the company to every be worth anything. (It turns out that was wrong!)

This is why I was annoyed when Congress bailed out these dot-com specu-vesters. They knew the risks, or should have. I chose not to exercise because of the tax consequences. They were no secret. Anyone buying stock options should know what they are and how they're taxed.