Advice for stock options vs. RSU - anyone?

[sunbutter]

I started a new position a little over a year ago at a large company.
I have been doing well (my colleagues set the bar low) and as a reward, I have been informed that I will be granted an "exception long term incentive."  Meaning, they typically don't give LTI to people at my level.  My manager doesn't even get annual LTI.  So it is a nice reward.

Having said that, I need to make some decisions between stock options and restricted stock units.  I can choose a mix of both in 25% increments if I want.  The company's growth in the last 5 years has been amazing so that is making me want to choose all stock options, taking the risk for the greatest reward.  Little catch - I have NO IDEA what the amount of the LTI grant will be.  So am I gambling with 5K, 20K…I have no idea.

Obviously, I am no where near retirement and I am not dependent on this money.   It cliff vests in 3 years, I hope I will still be around at that time, and I would have 7 years to exercise.

Is it a bad idea to go all stock options?  What am I missing?  I am really naive with investments - anyone out there want to give some advice?

[seamonster]

Personally, I'd do the RSUs because you get them no matter how well the company does. Stock options allow you to buy the stock at a certain price. If the company's stock price drops or stays fairly stable for a long time, your option price may be higher than the current stock price. If you want to do options, I'd mix them with RSUs as a safety net.

[litzo27]

The first rule of financial markets is that past performance is not indicative of future one At least not in the long term. It's definitely true that if the drivers of past performance persist then they will also be drivers of future one - but it's much more complicated than an expectation of simple momentum effect, especially over a longer window.

To more direct matters: in addition to the big difference that seamonster noted - that RSU have values regardless of how the company does and SO only have upwards value (and zero value if stock drops below exercise - which is probably price at grant, but not necessarily - read the fine print) there are other reasons. One is that RSUs are money in hand - when they vest you have them without any other outlays from you. For SO to use them you'll have to buy the stock at the exercise price. If this is $50K then you'll need $50K to buy them before you sell them at the current appreciated price. If you won't have the cash on hand you could borrow from a broker and pay a fee. Second big difference is tax treatment - RSUs are taxable income at vesting and SO at either exercise or sale of shares depending on the type.

Is your company public? I would look at some analyst reports (although they get it wrong plenty of times too) to see if their general long term projections are optimistic. Since you're not reliant on this money and it's just an extra opportunity I would probably play with it: 50/50 if it's large or 25/75 with more towards options if it's small.

[sunbutter]

Thanks for the advice! Glad I was thinking about the choices the right way. Considering the company's history and how diversified it is, and after speaking with my money obsessed BIL, i went with all options. Not expecting to make a huge profit at the time of vesting or exercise but I do anticipate somewhat steady growth in the long term.