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I recently was given a small amount of RSO (restricted stock option) which I was told I can "do nothing with" until one year passes. I get to use a third of it after 1 year; the next third after 2 years; the final third after 3 years. So I figured I would just sit on my butt until at least a year passes. BUT THEN someone in my office said, "you can do mark-to-market of course!" as if I would be making money NOW. I have no idea what he is talking about and cannot admit my ignorance. Help!
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I recently was given a small amount of RSO restricted stock option) which I was told I can "do nothing with" until one year passes. I get to use a third of it after 1 year; the next third after 2 years; the final third after 3 years. So I figured I would just sit on my butt until at least a year passes. BUT THEN someone in my office said, "you can do mark-to-market of course!" as if I would be making money NOW. I have no idea what he is talking about and cannot admit my ignorance. Help!

Pezkills,

In this context, "mark to market" sounds weird. I'm not sure exactly what your coworker meant (maybe you could ask him/her?)

"Mark to market" is a term generally used by companies when they adjust the price of securities to the market price at the end of some accounting period, rather than keeping them on the books at original cost. This is usually done when the holdings are not expected to be maintained for a long period of time. (The official accounting rules are fairly complex.)

If your company is publicly traded, potentially your coworker was suggesting you could calculate your potential profits by "marking your securities to market" and calculating the theoretical gain. That is, if your company's stock is trading at $20 and your options are fro $15 a share, you would have a theoretical $5 profit. Of course, you can't be sure you won't necessarily receive that profit until you're fully vested (and the stock price holds up through the period). This is my best guess of what your coworker could have meant.

I'm not aware of any ways to "marking to market" RSO prior to vesting and getting a locked-in profit. Please let us know if you find out otherwise.

Fool on,

Warren
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