Using Put Options to Protect Yourself During Employee Stock Sale Lockouts

Last night, I cam across this story via Gawker’s Valleywag:

Ex Twitter Employees freaking Out Because They Can’t Sell Their Stock

I proceeded to read some (sadly) amusing lamentations and stories about former Twitter employees who could not sell their Twitter employee options and stock on the day the lock up ended, supposedly while the executives could. here’s an excerpt:

An anonymous reader in Kinja, who directed us to the Facebook thread said “basically no employees have been able to sell,” except executives. According to the thread, a Schwab representative said Twitter placed a hold on exercising options and Schwab did not expect the hold to be lifted until this afternoon.

Twitter’s former head of communicationsSean Garrett wrote that Twitter sent out an email after the market opened saying:

“There was a glitch in the exercise functionality with Schwab, but it has been turned on.”

Apparently this explanation was not satisfactory to Twitter ex-employees with one of them uttering a quote that I can not reproduce here out of decency reasons.

So what should they have done?

I don’t know the entire situation so I will suggest some general ideas that might have prevented the ejaculations of such expletives. First off, if I had say $2M, $1M or even a “paltry” $250k in Twitter stock or options coming to me, but I had to hold them for 6 months, and I KNEW I was going to cash out, I personally, would take other money and set up a put option strategy to protect my value.

Put options go up in value as a stock price drops and they can be bought in various time tenures. Yes it costs some money and if the stock had gone up the put options would expire worthless, but that’s not the point. When you are receiving a lump sum that may likely be the largest payout in your life, wouldn’t it make sense to protect at least part of it?

Furthermore, being ex-employees, perhaps they were not so bullish on the company’s prospects? Which might rule out greed as a reason for not protecting the capital (I think!). Other possible explanations for not protecting the value might include being ignorant to market dangers, or worse, being too cheap to hire a good planner/CPA team to develop a strategy here. I hope someone with six figures plus in an expected stock payout wasn’t thinking about the pennies!

We have had clients with options and payouts. We studied the charts, and fundamental trends of the companies and together with our CPAs came up with a good (probably not perfect!) sell strategy. And if there were risk and a lock up involved, we would recommend exploring a put option strategy.

if you got a nice windfall but aren’t sure what to do, or want advice beyond the cookie  cutter mass market stuff on the web, call us 888.278.9433 or use our contact form HERE. We can talk over the phone or conduct a meeting over Skype, FaceTime or Hangouts. And remember, our first meeting is free (and we can’t bite you in a virtual meeting:).

At the time of this writing 5/7/14), neither I nor anyone in my firm has any client position in TWTR, and have no intentions to get involved in TWTR stock in the near future. The twitter story simply made a good current vignette for what we feel is a timeless strategy.