https://www.sec.gov/Archives/edgar/data/1306938/000120919118…
Looks like the CFO exercised 15k options at $1.4 and sold at $53, nice trade.
The worrisome part is that the options didn’t expire for another 5+ years.
That is to say: He’d rather pay taxes today and lock-in gains rather than hold OKTA until 2023.
Caveat emptor,
Naj
and, fwiw, ProofPoint insiders did the same thing yesterday. Everyone in the space realizing the overvaluation, perhaps?
That is to say: He’d rather pay taxes today and lock-in gains rather than hold OKTA until 2023. 00 Naj
He may need the money to buy a condo on Kauai.
Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
What do you make of the ownership data in Table II below the Table I data you are referring to? The shares listed in Table II appear to dwarf those in Table I.
The problem becomes that he is taxed today for stock options that might become worthless in the future. Of course then he can deduct a fixed amount against future taxes or against taxes owed, but in worse case scenarios it takes more than a lifetime to get even with the taxes paid to the IRS from the stock options.
There have not been such horror stories recently with stocks going up generally, but at the end of the internet bubble, there were people imputed a million dollar in income because of the stock options, and then they found out they had no money to pay these taxes because by the time they got around to it the stocks had all crashed and the options were worthless.
Depends on the form and substance of the stock holding, but in general stock options are immediately taxed as current compensation;
For non-qualified stock options (NSO):
The grant is not a taxable event.
Taxation begins at the time of exercise. The bargain element of a non-qualified stock option is considered “compensation” and is taxed at ordinary income tax rates. For example, if an employee is granted 100 shares of Stock A at an exercise price of $25, the market value of the stock at the time of exercise is $50. The bargain element on the contract is ($50 to $25) x 100 = $2,500. Note that we are assuming that these shares are 100 percent vested.
The sale of the security triggers another taxable event. If the employee decides to sell the shares immediately (or less than a year from exercise), the transaction will be reported as a short-term capital gain (or loss) and will be subject to tax at ordinary income tax rates. If the employee decides to sell the shares a year after the exercise, the sale will be reported as a long-term capital gain (or loss) and the tax will be reduced.
Incentive stock options (ISO) receive special tax treatment:
The grant is not a taxable transaction.
No taxable events are reported at exercise. However, the bargain element of an incentive stock option may trigger alternative minimum tax (AMT).
The first taxable event occurs at the sale. If the shares are sold immediately after they are exercised, the bargain element is treated as ordinary income.
The gain on the contract will be treated as a long-term capital gain if the following rule is honored: the stocks have to be held for 12 months after exercise and should not be sold until two years after the grant date. For example, suppose that Stock A is granted on January 1, 2007 (100% vested). The executive exercises the options on June 1, 2008. Should he or she wish to report the gain on the contract as a long-term capital gain, the stock cannot be sold before June 1, 2009.
Read more: Get The Most Out Of Employee Stock Options https://www.investopedia.com/articles/optioninvestor/07/esoa…
Follow us: Investopedia on Facebook
As such, since the stock option has an immediate taxable aspect to it if it is given at a “bargain” price, it strongly behooves the grantee to promptly exercise the vested shares to avoid any risk of getting stuck with the tax while the stock itself tanks and thereby removes the funds to pay the taxes at later date when you may actually exercise.
That is but one reason to sell stock options. Another is simply you need the money, or you want to diversify, or you are considering leaving the company, etc. Many reasons to sell, some very compelling.
Tinker
As far as I can recall from past discussions on the board regarding insider sales.
We don’t concern ourselves with insider selling.
Insiders are given options in stock on and on going basis and they use some of it to have cash on hand to finance their lifestyle.
While inside of selling doesn’t seem to have any effect usually on where the stock is going,
Insider buying is more indicative of bullishness for a stock.
Lots of activity by a insiders agreed, but what a list of owners! Omg
Marc Andreessen
Greylock
Sequoia
Vinod Khosla
https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CI…
That is backing from very connected folks in Silicon Valley. I tried to find his total stock ownership but the data is not correct on Morningstar. They list him as a 5% owner with no share count. It could be a small part of his holdings.
https://www.morningstar.com/stocks/xnas/okta/quote.html
More to be learned with this one.
Flygal
I found his salary as $303k
At the time of the filing below he had almost 1.1M in options
https://seekingalpha.com/filing/4014910#/D563591DDEF14A_HTM_…
It is perfectly reasonable that perhaps he wanted $795K to purchase something for himself or support his lifestyle.
Insider trading continues to be overblown, especially when perspective isn’t applied.
My experience with employer-granted options, though dated, is a bit different.
In the late 90s and early 2000s I was awarded a variety of options by my employer for exemplary performance. The options vested on a set schedule over a number of years, 3 or 5, then had an expiration date, some 5 or more years after vesting. My tax obligation was due when I sold the shares, not when the options vested.
For example, my first option award was a staggering 50 shares (joke aside, it was a nice perk, and another trigger event in me learning of the stock market). The dude in the office next to me, a dear friend, came out after our boss had been around with the option grants, after hours, asking, “Hey, cool, did everybody get 100 shares?” Heh.
He cashed his as soon as they vested in 3 years, spent the money on LASIK. I waited after vesting until expiration, another 5 years, and my strike price was 3x current stock price. So I got $0.
Bird in the hand, carry on.
-kiplin
So this: “My tax obligation was due when I sold the shares…”
Means: My financial situation and obligation changed when I exercised the options, or not as the story went.
If you look back when Amazon was selling for $100 or $200 you’ll find 50 or 60 insider sales a quarter, every quarter, and no insider buys. It sure didn’t indicate which way the stock was going.
Saul
The problem becomes that he is taxed today for stock options that might become worthless in the future.
That risk only exists if he exercises today and then holds onto the shares in the hopes of converting gains into long term.
As long as he keeps the options as options there is no tax burden.
If he sells the stock immediately after exercising the option, then there is a tax burden, but no risk of them becoming worthless since he’s selling them right away.
Yet another possibility is that the options have an expiration date by which he must decide to exercise or lose them. But, I think expiration is unlikely to have occurred with Okta today.
If you look back when Amazon was selling for $100 or $200 you’ll find 50 or 60 insider sales a quarter
But you won’t find people exercising options over 5 years early to sell, either.
Which was the entire point of my post, sorry it got missed…
But you won’t find people exercising options over 5 years early to sell, either.
Which was the entire point of my post, sorry it got missed…
Regarding your point, naj, here is some further context from Table II of your link:
The guy did sell 15,000 shares that he could have held until 2023, but he still owns options for 135,600 shares that doesn’t expire until 8/27/2025; 315,200 shares that doesn’t expire until 2026; and 82,500 shares that doesn’t expire until 2028.
So while, yes, he sold 15,000 shares that still have 5 years until expiration and sold them at a lower cost basis than the basis for his other options ($1.40 strike rather than $7.17, $8.97, or $39.21 which must have been granted this year); he still owns options for over 500,000 shares that expire even later. Thusly, focusing on the fact that the options he exercised and sold have 5 more years until they expire seems mostly irrelevant in light of his other remaining options. As Rob pointed out mostly in jest, perhaps the guy just needed to pay for a condo somewhere.
-volfan84
no Okta position, but long on more robust contextualization