is it worth buying share options for Lloyds?

user1168934

I have never dealt with share options before, so could use some advice. Basically, Lloyds bank are doing a share options offer for employees where you can save an agreed amount each month (between 100 and 500) for a period of 3 years and at the end of the three years you can use it to buy Lloyds shares at a 20% discounted price as at 30/08/2019.

For instance, you agree to save £100 a month so in 3 years you save £3600. Suppose the share price on 30/08/2019 is £0.50p per share. At the end of three years you have the option to use the £3600 to buy Lloyds share at £0.40 (i.e. 20% discounted) per share.

With low saving rates, I doubt there is anyway I can hope to get the same return. Even with investment say in a multi-asset fund, I doubt there is a realistic chance of getting a potential 20% discount (may be much higher).

I dont mind locking away 100-200 each month. It sounds like a good option to me but like I said I have not done this before. Do you guys think this is worth doing?

Edit: To clarify, the letter from lloyds did say that it is optional to buy at the end of the three year period. You can simply take your money at the end of the period.

danm

Generally there is limited downside with these types of plans assuming you have the option not to exercise at the end of 3 yrs and there are no funky tax rules

If for example you have option to by at 40p but at the end of 3 yrs the shares are trading at 20p then obviously you would not want to exercise that option.

At this point assuming you can take your cash back the only thing you have lost is the interest forgone from the money not being in your savings account (but that is going to be less than £100 at current rates)

steampowered

As you have described it, it sounds like a one-way option to buy Lloyds shares in 3 years time based on the 31/8/19 price.

If the share price increases over the next 3 years or stays the same, you'd exercise the option and be quids in. If the share price drops, you would not exercise the option.

That sounds like a good outcome to me. Essentially you are taking the benefit if Lloyds shares increase without taking the risk if they drop.

However - if you exercise the options and get the shares - you should sell the shares at the market price as soon as possible, and move your holdings into a diversified low cost fund. It is extremely high risk to keep your money invested in just a single company, particularly in a bank. Sensible investing spreads the risk across different companies, geographies and sectors.

user1168934

Thanks for the replies folks. The letter did say that it is optional to buy the shares at the end of the three year period, you can simply take your cash in case you don't want to buy.


I am not sure what the tax implications will be though. Is there a way I can find out?
Also do you think this money is protected by FSCS or something?

eskbanker

user1168934 wrote: »

Even with investment say in a multi-asset fund, I doubt there is a realistic chance of getting a potential 20% discount (may be much higher).

Obviously past performance doesn't directly correlate with the future, but if you compare the past three years, Lloyds (in red below, appropriately) is down a bit while a typical mid-range multi-asset fund (VLS60) is up 25.9%, and the difference in volatility is clear for all to see:

user1168934

eskbanker wrote: »

Obviously past performance doesn't directly correlate with the future, but if you compare the past three years, Lloyds (in red below, appropriately) is down a bit while a typical mid-range multi-asset fund (VLS60) is up 25.9%, and the difference in volatility is clear for all to see:

Oh ok may be I was wrong then I am glad I asked.

But I am still thinking of doing it. My decision is also skewed by:

1. Lloyds share price as at 30/08/2019 have fallen in price and seem a bit low compared to historical prices (agreed that historical prices are not a good indicator ....). I think they "should" recover.

2. This money is otherwise probably going into a regular saver with a 2-3% interest (or could increase my multi asset holdings)

3. I have held Lloyds shares for the last 8-9 years and in terms of growth they have been ok, even paid a bit dividend in the last 2 years or so.

4. It is optional to buy at the end of three year period, so potentially I will lose on interest for 3 years. (Although I could put in a multi asset fund which could have substantial growth - you ruined this one for me :mad: )

5. This is not my bulk of investment, just something on the side.

6. I might sound like an idiot and feel free to facepalm but I am thrilled / excited by the prospect of potentially large gains (which is why I thought I will ask what you guys think before making a rash decision).

System

You are not buying an option, you are being given (at no cost apart from the foregone interest) the option to buy Lloyds shares in three years at a 20% discount to the market price in August 2019. An option is valuable as you will only exercise it if it is profitable to do so. It sounds like a no-brainer to me.

eskbanker

Yes, just to be clear, I wasn't necessarily disagreeing with the conclusion that it's worth signing up to the scheme, I was just challenging the notion that it's unrealistic to achieve 20% growth in multi-asset funds over three years.

Having said that, even for the three-year 25.9% growth in VLS60 over that previous period, anyone drip-feeding in at £100 per month wouldn't have achieved that headline growth figure on their £3,600 so for that specific comparison it still would have worked out better to use that sum to buy Lloyds at a 20% discount on the starting price! Other multi-asset funds are of course available, some of which will have outperformed VLS60....

I would also take issue with the perception that Lloyds shares have been OK for growth over the past 8-9 years - anyone buying in during the big dip in the first three years would perhaps see it that way but they've been at best stagnant for the last six years and the recent reintroduction of dividends really doesn't compensate in any meaningful way:

LHW99

Would there be any issues if you should happen to want / have to leave your job before the end of the three years?

worried_jim

user1168934 wrote: »

Thanks for the replies folks. The letter did say that it is optional to buy the shares at the end of the three year period, you can simply take your cash in case you don't want to buy.


I am not sure what the tax implications will be though. Is there a way I can find out?
Also do you think this money is protected by FSCS or something?

I don't know any colleagues that aren't buying them! Sharematch, sharesave + the dividends, free shares, they all add up and I haven't made a loss yet.

There is no tax implication, check the sharesave site on the interchange for all the answers.

user1168934

LHW99 wrote: »

Would there be any issues if you should happen to want / have to leave your job before the end of the three years?

I don't know but I certainly need to find out.
Basically I just read the letter yesterday and kind of rejected the idea at the time. This morning I started thinking that it certainly sounds better than putting money into a regular saver each month so might as well take a risk on the interest ...

I am forming an opinion that I should go for it, may be even for a bit more than £100 a month. I will try to get more information regarding what happens if I leave and any tax implications at maturity, etc.