historical stock prices / splits correlations to investments

henry.369's Avatar

henry.369

20 Sep, 2020 05:18 PM

Why does the purchase price correlates (or maybe you can say corrupts) with the historical stock price. Let start be offering an example.
Stock Option Grant #1. Monthly vesting...

Fair Market: $50
Strike Price: $10
Shares: 600 over 5 yrs (keeping math simple)

Month 1: fair market is at $50, I enter a purchase of 10 shares at $10 (offset to stock liability, indicating I need to value $ owe in order to vest).
Month 2: fair market is a $100, I enter a purchase of 10 shares at $10 (offset to stock liability, indicating I need to value $ owe in order to vest).

*by saying purchase, I mean entering under a account under Investments as a BuyXsf.
*stock liability is a "liability" section I've created to offset the cost of buying the stock. It is a holding I created to build up on my stock option grants. Since I have a right to exercise at some point of time, and I have not exercise yet. I record my exercise directly to this account. If they expired, I simply offset them at the investment account.

Question 1: with regards to month 1 and 2, the historical will show price fluctuation across $50 -$100 which is fine. Now my entry of $10 skews the chart by dropping the price to $10 and then back up at $50. How do I leave historical at the natural market pricing and now let me entry interfere. Another question is how does the historical stock price work in relation to the actual investment.

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With respect to the above, I want to add another element to this. I would truly appreciate / value some insights as well.

Month 3: fair market is a $150, I enter a purchase of 10 shares at $10 (offset to stock liability, indicating I need to value $ owe in order to vest).
Month 4: fair market is a $200, I enter a purchase of 10 shares at $10 (offset to stock liability, indicating I need to value $ owe in order to vest).
Month 5: stock split 2 for 1; fair market is a $100, I enter a purchase of 20 shares at $5 (offset to stock liability, indicating I need to value $ owe in order to vest).

Question 2: the before and after. my grant now has changed, as I enter 4 months at a pre split price and 1 month at a post split price. Now what happens to the historical as the price were moving up at $50, $100, $150, etc. I guess my questions is probably answer partially if I understand historical pricing a little more. Also it would help if I understand the timing of month 5 before/ month 5 after better and the impact. Noting that I will enter a 2 for 1 stock split under the historical. How do I maintain better share count with a split during the term of the grant.

Understood this may be a tricky one. All numbers are make believe and kept simple for easier evaluation. I am more interested in the logic of the program's reaction.
 

Thanks,
Henry

  1. System closed this discussion on 20 Dec, 2020 05:20 PM.

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