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Comment by harikb | Hacker News Reader

Fun fact: You have to pay AMT on exercise even if the stock cannot be sold in the open market. Usually this means dipping into ones other savings. It hurts even more than you are paying AMT on fictitious valuations (if the company is not public yet) and you really can't be sure if they will ever go IPO

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Even if you can’t sell the stock directly you can effectively sell options for someone else to buy that stock from you at IPO.

I haven’t looked into this myself, but I recall reading about someone doing this when their options where about to expire in a relatively hot but still far from IPO startup.

I have heard of 'second market', but how would one go about doing this? Do they create private contracts and such for a non-yet-listed company?

My understanding is the ‘secondary market’ is normally based around people selling actual shares and you’re required to have approval from the company before you can sell shares on secondary markets.

The company can do this for the same reason they can force employees to wait six months after IPO to sell their shares, it’s in the contract you sign when exercising your options.

Which is why selling options is a loophole…

You don’t sell options, you obtain financing to exercise options, with said financing backed by the converter stock produced from the options you’re exercising. Terms are fucking _brutal_, but when you’ve spent a decade at a company with no exit in sight, your hand can be forced. Hence why there’s a market for this.

Brutal terms, but they can be terms where if the company fails to IPO you aren’t in debt. It’s just a question of how much risk you want to take on vs how much upside you need to give up.

Worst case you can always exercise whatever portion of your options you can afford and accept the inherent risks for doing so.

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