Buy company stock at a discount

[superboiler]

I am allowed to buy company stock at a discount each year – about 15%. They set the price and then we have about four months to participate in the program. If the stock price goes up further during this time, we still get the original set price for the purchase – so more profit. The amount of stock is a percentage of my salary. When I submit payment, it takes about 2-3 weeks to receive the stock certificate. When I have done this in the past , I usually sell the stock immediately and take the profit – I don’t want too much of my money in my company stock. The only risk is the 2-3 week wait period to receive the certificate as the stock price could drop in price.

This year it is challenging as I do not have enough cash on hand to make the full purchase. So should I:

- borrow the money, buy the stock and then sell the stock, pay back the loan, and take the profit – still a risk during the 2-3 wait period for the stock price to drop some

- other strategies…I have heard of people shorting or something the stock in brokerage account and then doing the above. This effectively allows them to lock in the price?

[Hypersion]

You can but options to hedge the 3 week waiting period.

Personally I used to max out my ESPP and sell the stock every period as soon as I could. It's one of the best returns possible for the low risk involved.

[am_vanquish]

Shorting the stock or purchasing options can be expensive & will probably take a chunk out of your return. Same situation (but to a lesser degree) for borrowing the money. Btw, where would you be planning to borrow this from? Unsecured loan, 401k, HELOC, loan shark ... don't sound like a very good idea to me. Family/Friends who are willing to help out ... maybe.

To be honest, I don't like either of the options you've listed. One important lesson I've learned in the last 15 months is that leverage isn't always a good thing. Maybe the best thing for you to do is only contribute as much as you can afford right now.

That said, I could be persuaded if you took the initiative to do a little more homework and provide us with a more detailed plan for either option (schedule of fees/commissions) and make a convincing argument for how it will affect your return.

[JBinKC]

It is really tough to answer because of the numerous factors involved such as how much arbitrage is built in the stock, borrowing costs, tax implications especially if you don't itemize, normal volatility of the stock, the speed of receiving the securities etc.

To lock in a profit you could buy put options but if the stock is volatile the commissions and time premium could wipe most if it away especially in a very high beta stock.