Options Trading Tutorial

Employee stockoptions-current stock value well below my strike price, can I sell at a loss for a tax writeoff?

Current strike price is $11 Current value is about $7. Can I excersize my shares, and use the "loss" as a tax write off on my taxes?

Public Comments

1. There are no tax consequences to the exercise of an option below its value. You can't deduct a loss until you sell the stock. Assuming you pay $11 and sell for $7, you can deduct a loss of $4 a share. Keep in mind that the loss doesn't reduce your tax dollar for dollar. For example, if you are in the 25% bracket, the loss saves you 25 cents for each dollar of loss. If you use the loss to offset long-tern gains, the saving is lower (for example, 15 cents if you are in the 15% bracket and nothing if your gains aren't taxable this year). In other words, for each share you sell at a loss, you're out of pocket 75 cents: $1 cost - 25 cents tax savings. Would you give me a dollar in exchange for 75 cents? That's the net effect of exercising below value and selling.
2. it would be stupid to exercise $11 for a stock valued at $7.