Whats the catch? Employee stock Purchase.

E

egrizzly

The new company I started with offers 15% discount on shares/stock. Meaning that if the stock price is currently $10.00, employees can buy it for $8.50 and theoretically resell it at a profit.

So at the bar a finance guy I was chatting with said that if I consistently buy/sell the stock over a period of ten months I can make 400% profit since I'm re-investing the 15% I made from one trade onto the next trade.

So is there any truth to this, or are there some hidden penalties....seriously it's the first time I'm hearing about something like this.
 
egrizzly said:
The new company I started with offers 15% discount on shares/stock. Meaning that if the stock price is currently $10.00, employees can buy it for $8.50 and theoretically resell it at a profit.

So at the bar a finance guy I was chatting with said that if I consistently buy/sell the stock over a period of ten months I can make 400% profit since I'm re-investing the 15% I made from one trade onto the next trade.

So is there any truth to this, or are there some hidden penalties....seriously it's the first time I'm hearing about something like this.
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Not true. Most firms allow you to purchase stock as part of the 401k plan. You can defer up to some % of your salary (usually 10% of gross) toward company stock. So if you make 50k a year, you can buy up to 5k worth of stock a year and yes you can buy the stock at a 15% discount. You can not daytrade it and keep getting the 15% discount.
 
egrizzly said:
The new company I started with offers 15% discount on shares/stock. Meaning that if the stock price is currently $10.00, employees can buy it for $8.50 and theoretically resell it at a profit.

So at the bar a finance guy I was chatting with said that if I consistently buy/sell the stock over a period of ten months I can make 400% profit since I'm re-investing the 15% I made from one trade onto the next trade.

So is there any truth to this, or are there some hidden penalties....seriously it's the first time I'm hearing about something like this.
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Typically tax limitations on selling. https://communications.fidelity.com/sps/fidelityinvestor/2015/Q4/ESPP/article2.html
 
just21 said:
Enron employees lost their jobs and investment in the firm when it went bust.
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There were probably people at Enron who lost their jobs and their investments in pets.com.

There are probably people who lost their jobs at Apple but made a fortune with their Apple stock.

What's your point?
 
Make sure how the discount is handled. If I remember correctly when I had this option years ago, the discount is paid by the company and is considered taxable income. The net benefit you get is less than 15% and depends on your marginal tax rate.
 
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