Correct me if I'm wrong, but even with an early exercise (or an exercise of vested options) where the valuation matches the strike price, that employee would still have had to personally fork over the amount needed to purchase the underlying shares. In the scenario described in the article, they've still lost a substantial chunk of money if the valuation is now a fraction of the strike price.
Secondly, while capital losses can be carried forward indefinitely, you can only apply ~$3,000 per year (as a deduction, not a credit).
1) you pay the strike, and pray the valuation continues to rise through any IPO, buyout, etc..
2) arbitrage - you pay the low strike, then sell in the secondary market for more, and hopefully realize a one-time profit after cost frictions.
From the article, sounds like most of the afflicted here were playing strategy (1), while there was some window to execute on (2) though many may have not noticed it.
> that employee would still have had to personally fork over the amount needed to purchase the underlying shares
Then what is the difference over just buying the shares outright as opposed to exercising options?
My understanding has always been that exercising options means getting a benefit (the shares) which has a value (the strike price) and you subsequently pay tax on that value.
You pay the strike price in cash and you get the shares. Your "basis" in the shares is the strike price (what you invested).
You base your AMT tax calculation on the difference between the fair market value and the strike price (that's the "phantom income").
When you sell the shares, your realized capital gains is based on the original basis and you may have AMT basis that's different.
If you exercise and immediately sell, AMT doesn't factor in.
Concretely (and picking semi-random numbers): If your strike price is $10/sh, the FMV is $25/share, and you have options on 1000 shares, you'd pay $10K to exercise, get 1000 shares, and have $15K in AMT income to consider.
If those shares later soared to $40 and you sold, you'd have a capital gains of ~$30K ($40K proceeds minus $10K basis minus commissions and fees).
If those shares instead crashed to $0, you'd have possibly paid AMT on the phantom income and you definitely lost the $10K in cash.
It sounds like the watch may have been in a locked state (requiring an unlock by entering a PIN or unlocking a paired iPhone). If this were the case, the PIN entry is unrelated to using Apple Pay.
