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Let's say I have a job offer from a public company where a significant part of my compensation is in stock. I like the company and the position but I'm concerned that their stock is overvalued. Now, I'm not a financial analyst, it just feels like there's a fairly good chance it's too highly priced to me.

Can I short their stock before joining, as a hedge against my compensation declining? I do not have any inside information. It would be illegal once I join the company to short it, or at least against their terms of employment, but what about before accepting the offer?

And further, is this a good idea? It seems kind of lame to pass on a job I like just because the stock is overpriced, but perhaps that is the smarter thing to do.

closed as off-topic by Dukeling, IDrinkandIKnowThings, paparazzo, gnat, gazzz0x2z Aug 24 '18 at 7:32

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    Do you have to tell them that you're shorting them? How much is the stock overvalued? Will a correction materially change your prospective income? – user1666620 Aug 22 '18 at 6:44
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    When I saw the question I thought you expected to perform so badly in the job that the stock price would probably fall. – RemcoGerlich Aug 22 '18 at 8:47
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    This is probably close enough to insider trading that you should be talking to a lawyer if you really want to do this. It's not entirely unheard of to get some confidential information during the interview process (some companies ask you to sign NDA's before attending interviews) - this is not to say you have confidential information, but that's often not too relevant. Also, since you're getting the stock anyway, I'd view shorting it as a separate investment - would you have shorted it if you weren't joining, or would you have invested that money elsewhere? – Dukeling Aug 22 '18 at 12:51
  • You might have to register as an Insider if you are getting compensated with stock right from the start. I'd suggest looking into that. – CrossRoads Aug 22 '18 at 19:23
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What if you short the stock, the price rises, but you don't stay employed long enough to receive the anticipated shares? You could incur huge losses. If your goal is to insure your future stock awards against a falling market, you might instead purchase put options that would give you a guaranteed selling price for your future stock awards. However, your new employer may have policies that prohibit you from trading in derivatives tied to the company stock. You may also be subject to a restrictions preventing you from buying or selling the company stock at certain times.

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IMHO, depending on your location, you can be subject to insider trading investigation even if you claim not to have any insider information.

Given you already have the offer in hand, based on what you plan to short and accept the offer, it becomes your only reason for shorting.

I am not a financial lawyer, so not sure if this reason holds up in case you be investigated.

As per communication with the employer, unless you accept the offer prior to registering the trade, IMHO you do not need to disclose it.

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The first problem with your plan is that it is risky. Shorting stock is risky. If you short 1,000 shares at $10 and the share price goes up to $20, you owe $10,000. And your stock broker will want that money now.

The second problem is that this will not make a good impression if your company ever finds out. Your company will pay you to do good work and make the share price go up. You are betting against it. As your boss, I wouldn't be happy.

And I worked at one company where the employee handbook said employees were not allowed to trade in company shares in a way that could look suspicious. (Obviously you are not allowed to trade in an illegal way, but they got into trouble through the actions of one VP who suddenly found himself an ex-VP, so they didn't want anything looking in the slightest way dodgy). Short selling raises the suspicion that you are acting on insider information, or worse that you plan to do something that affects the share price negatively - even though none of this is true, for that company suspicion would have been enough.

All that said, whatever else a job offers, the salary itself should be enough to satisfy you. If you get stock as compensation, you should be able to sell it every month. The company is publicly traded - how many shares are traded daily? Enough so you can sell your shares every month?

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Is it illegal/Breaking terms of employment?

Not unless anywhere in the contract says "Under employment you can not short stock" however it is borderline, you'll be playing a risky game if you do.

Ethical? Probably not.

Take the job, perhaps you can even suggest such advice, but as you said you're not financial expert so potentially you'll be ignored. However... take the job if it's something you'd like to do and start looking for a job when you feel something bad will happen.

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As you said:

I do not have any material inside information

Therefore, unless you leaving would have a direct result on the stock price, you should be okay from a legal perspective.

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