I've got an employee stock purchase plan program. The details are a little tricksy, but I basically get to buy about 2500 shares of company stock at something like $2.33/share... and the stock has been trading around $12 recently (sometimes higher, sometimes lower). I get to do it again in September, and then once more a year from now, before the price resets to something a little less absurdly lucrative.

I haven't consulted with a tax adviser yet (that's soon, though) but I believe if I hold onto the stock for a year, the gain will count as long-term capital gains instead of short-term. That's a really nice way to save on taxes!! I'd prefer to do it, and I don't need the money any time soon. However, it leaves me holding a lot of company stock in the meantime. In fact, $30,000 is approximately the size of the rest of my savings put together. (I'm 25ish, for reference). One small-cap technology stock taking up 50% of my portfolio doesn't strike me as being very diversified, especially if I work there too!

I'm reasonably confident that my company will continue to do all right, and that even if it doesn't, I'm probably going to be one of the people they'd prefer to keep, but it's entirely possible that we'll miss our earnings estimates one quarter, or get sued randomly by a major competitor, and the stock would fall quite a bit. (On the other hand, the analysts seem pretty optimistic, and have target prices around $15 or so.)

I need to decide what to do with all this stock - how much of it to hold, and how much of it to sell, and when. How can I understand the risk involved in holding it for at least a year? What strategies can limit it?


While my margin is not nearly as good as yours, I sell out early. I generally think it's a bad idea to hold any single stock, as they can vary wildly in value. However, as you mention, it's advantageous to hold for one year. Read more about Capital Gains Taxes here and here.


I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this:

One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details.

From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain.

As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out.

In terms of hedging the risk if you do choose to hold long, here are some ideas:

  • Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or

  • If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE.

    Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge.

  • It's not options. It's a stock purchase plan. There are indeed PUT options (we're on NASDAQ) but there aren't any with expiry dates after November. I don't think that there are official restrictions on me getting any of these options, but it's definitely Frowned Upon to actively "bet against the company stock". – user296 Mar 5 '10 at 23:32
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    @fennec but if your overall position is a married put, your interests are still aligned with the company's, albeit not as strongly as if you simply held the shares. – Daniel Lubarov Dec 8 '13 at 22:23

Judge this stock no differently than any other is the answer. Optimism isn't fact.


Now because you get to buy extremely low, and sell for probably higher and you believe in the stock, I'd say go ahead and purchase the stock, manage it for taxes with the advice of your advisor and get your portfolio rebalanced as soon as you can. That might admittedly be a year or more, but as you say you have time.

Like any investment, don't spend money you can't lose.


Since you work there, you may have some home bias. You should treat that as any other stock. I sell my ESPP stocks periodically to reduce the over allocation of my portfolio while I keep my ESOP for longer periods.


Split the difference. Max it out, sell half immediately and wait a year or more for the rest. Or keep a third... whatever works for your risk tolerance.

A perfectly diversified portfolio with $0 in it is still worth $0.

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