Stock Options Vesting Soon

I have been grappling over the past few weeks on how to report some stock option that will vest as of January 1, 2007. When I joined my current company, I received some options that vest in 1/3, 1/3, 1/3 increments. The first third is set to vest. Although these have been going in and out of the money for about a half year now, I believe that the prospects for my company are good and I could be sitting on some gains in the future.

The question I have is whether to include this in my investment new worth or not. I have been looking at it in a couple of ways. The first, is what I want to do with the money. My first inclination is to use the proceeds to pay down my mortgage. Although this is not directly investment related, it does do a lot to increase my net worth. The second is to take these gains and invest it in more dividend paying investments. I know that I can earn a higher rate of return on my investments – higher than the mortgage rate I am paying.

At this time I am not sure what I will do – but I am leaning towards paying down the mortgage. The potentially could be enough there at some point to pay off a huge chunk leaving me with a very small mortgage balance and being so much closer to having the extra money on a monthly basis to invest (because I would have no more mortgage payment). I will let you know when I get there.