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Yes, he should diversify, but there is a risk to that. If he cashes in his options and he doesn't do it in a way that ensures that he pays a long term capital gains rate, he could end up paying more money in taxes than he should.

Make sure he cashes in options that are older than one year first. Let's say he's got options that were issued 18 months ago. Cash those in first -- he will get both the long term capital gains rate and a higher basis. The goal is to get over the threshold for long term capital gains and to maximize the basis.

He can continue to do this as long as he wants to. I'd take some of the money and diversify. He's got enough to set up a decent portfolio on his own -- no mutual funds for him.
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