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OP never mentioned anything about options, just an ESPP. The special tax attributes regarding the bargain element are applicable only to qualified ISO's. If this is a plain old vanilla stock purchase through payroll deduction it's a lot different.

No, he didn't say, but qualified Sec. 423 plans make up the vast majority of ESPPs....85% as I recall. And both use options, although this may be transparent to the employee.

As I said, Employer stock should be treated no differently than non-employer held stock. It is simply part of one's asset allocation model. If it is a private company, then liquidity issues must also be considered. The argument for misallocating is usually from the standpoint of over-exposure to employer stock due to the, presumably, better understanding the employee has of the employer's operations. But as ENE showed, this can be as misleading as any market misinformation.

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