'Our only quarter-trillionaire is still not paying anything close to his fair tax share.'
, for instance, have suggested that an option holder like Musk benefits tax-wise by exercising when the trading price of the company's stock is low. Musk, according to, made a mistake by waiting as long as he did to exercise his Tesla options from 2012. But the mistake seems to belong toIn tax parlance, Musk's stock options go by the label of"non-qualified" stock options.
Now, let's compare the tax results to Musk of exercising when the trading price is running at $100 per share and $1,000 per share, assuming in either case that he sells just enough of the shares he's exercised to cover his tax liability. In both cases, he'd have income equal to the value of the shares and end up holding 47 percent of the shares on which he exercised options, with the other 53 percent of the shares sold to pay tax.
To see this, compare the result if Musk exercises his option on 1,000,000 shares when the trading price is $100 and pays the tax, $53 million, from his own pocket with the result if Musk buys 530,000 shares when the stock is trading at $100 for the same $53 million and waits until the stock is trading at $1,000 to exercise his options, at which time he allows 530,000 of the shares just purchased to pay the tax. Economically, the results in these two cases end up identical.
Why then did Musk sell when he did? Three things can make a person in Musk's position exercise stock options: The options could be about to expire or the stock could appear to be overvalued or tax rates could be about to increase. Any one of these could cause a savvy option holder to sell.
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