When we think about the stock market, most of us tend to think of shares in a company. You may purchase a share of Starbucks, for example, and then hold that stock until such time as you choose to sell it. The price of the stock will depend upon its current market value, as established by the stock market. Said another way, the price may go up, or down, or stay the same.
The stock may split or “reverse-split”, meaning that the number of shares may be multiplied (or divided), and then the cost per share adjusted accordingly. In other words, if you had a stock worth $100.00 a share, and you owned 10 shares, if that stock then split at a 2:1 ratio you would now have 20 shares but the stock would be worth $50.00 per share. The overall value would not change, just the number of shares.
Options Trading and Wall Street Bets
If you go one step higher into exotic financial instruments, then you would get to stock options, commonly referred to as options trading. On the subreddit “r/WallStreetBets” you can find one of the busier platforms discussing these types of trades. Here, many proudly brag that they are involved with Wall Street’s casino, and they (mostly) proudly pronounce themselves as gamblers rather than traders or investors. The idea is to make big bets, that are far more risky than the average buy-and-hold strategy of most stock traders. Win big, or miss big, the goal is to chase fast wealth through risky plays.
But what is option trading? And more importantly for our purposes, how may option trading impact your divorce? What if you are
What Is Options Trading?
Options are essentially contracts, specifically contracts to have the right to buy or sell a certain stock, at a certain price, during a certain timeframe. Notably, there is no requirement to exercise the option, though you will pay the premium on having held the right to do so.
A few of the basic terms involved in stock options are “calls” or “call options,” which provides the buyer the right to buy a certain stock at a set strike price and “puts” or “put options,” which provides the buyer the right to sell a certain stock at a set strike price.
In other words, if you believe a stock is going to increase in value, you could purchase a call option on the stock, and if you believe a stock is going to decrease in value, then you could purchase a put option. Either way, you would have the ability to “exercise” the option to buy (or sell) for the established price in the future.
Options and Timing
In terms of timing, stock options can last as short as a day up to months or even years. While you hold the stock options, you can choose when to exit, and you may be able to flip the stock options for additional funds if your “Call” or “Put” is looking likely to be successful, or “print” as those in the options world call it.
Options are becoming increasingly popular, particularly among younger investors, and given the recent surge of ease and availability for such options to be played with the advent of online brokerages such as Robinhood. Accordingly, it is increasingly important to be aware of how options may impact a New Jersey divorce.
Options Contracts and Divorce
As part of any divorce, it is important to catalogue all assets and liabilities. Until recently, it was unlikely for there to be stock options as part of a couple’s holdings. There may be retirement funds in a 401(k), or IRA, or a basic taxable account, but there would be simple shares that would be easy to locate and divide.
Today, investments may include more exotic categories, such as Bitcoin or other cryptocurrencies. Likewise, there may be stock options to catalogue and divide.
What makes most financial investments difficult to catalogue in a divorce, is the fact they are constantly changing. For instance, a share of NVDA purchased as recently as Friday is down approximately 11% so far today. If you thought you had $100,000 of NVDA stock on Friday, or $50,000 each if evenly divided in a divorce, then it may come as somewhat of a shock to learn that today the value is only $89,000, or $44,500 each. And, of course, it may continue to decrease in value or gain back its value plus some more. Almost every day the value of stocks are changing. Which can throw off the valuation necessary to finalize a divorce settlement.
Protecting Your Assets from Option Volatility
This is doubly so (at least) when it comes to options, which are far more volatile. For that reason, it may make sense to attempt to close out all options contracts as soon as feasible to help simplify the divorce process. If your spouse continues to make risky options purchases during the pendency of a divorce, then you may even need to file a motion to get them to cease such investments.
Tax returns and brokerage account records are vital to assist in understanding the investments made, and the current value of same. As options are considered more risky, you need to take swift action if you believe your ex is dabbling (or more) in options. Which is not to say that options are guaranteed losses, of course. If frequent investing in options is considered consistent with the marital status quo, then your ex may even be able to make the argument that they are simply carrying on as per what is expected and reasonable in your particular relationship.
Conclusion
Options are a somewhat exotic financial instrument, one that many people going through a divorce may not be familiar with. It is important to determine if your ex is involved with such financial instruments, to help properly catalogue all marital assets, and preserve the value of your marital estate.