short sell vs exercise chonawee pointed short selling stock may bad decision tax implications ignoring legal aspects suppose strike 70 granted atm option sell short 70 ten lots one lot 100 shares price goes 100 lose 30 x 1000 30 000 short position option exercise gives 30 000 taxes pay taxes option income treated ordinary income tax 28 x 30 000 8 400 use 3 000 loss ordinary income saves 840 taxes course capital gains use losses option position offset remaining part capital loss carried forward get tax benefits time less time value money assuming income future capital gains good way valuation optimal exercise employee stock options interesting difficult problem vince chonawee supatgiat enron 07 10 2000 11 40 stinson gibner hou ect ect vince j kaminski hou ect ect cc subject short sell vs exercise writing originally planned post somewhere explains handle special type call options exercised sold know never optimal exercise call option maturity however taking vince comments ordinary income capital loss tax offsetting issue think good article anymore guess could throw article away chonawee short selling better exercising employee stock options general sensible time exercise employee stock option speculate ene going growth rate extremely low fact exercising options speculating ene would never reach point plus interest 10 years maturity date leave company anticipate hold options gain higher profit delaying exercise however believe ene reaching peak instead exercising options short sell sell stocks amount short selling feel stock starts go buy back cover make profit still keep options hand stock go expect exercise options cover short position anytime let us take look simple case taxes dividends zero risk free rate suppose ene follows simple sample path follow exercise 100 ene options grant price 45 ene reaches 70 would earn 70 45 100 2 500 short sell 100 ene 70 matter much ene future exercise options cover short position still earn 70 45 100 2 500 advantage short selling comes ene period 2 60 point cover short position get 70 60 100 1 000 still keep options exercise options gain 2 500 still keep flexibility options short sell conclusion sensible time exercise employee stock options cover short position