Frequently Asked Questions

When you exercise an employee stock option, you need to pay the strike price of the option to buy the stock. The exact cost to exercise equals the number of options you exercise multiplied by the strike price of the stock option.

You may be able to cover the cost several ways, including with cash, with other shares (known as a stock swap), or via methods like a share withholding, cashless exercise, or a sell to cover.
Ultimately the decision you make will be tied to personal financial planning goals and company plan rules and regulations.

There are two types of stock options– incentive stock options (ISOs) and non-qualified stock options (NQSOs). They have many similarities, including a strike price, a vesting schedule, and an expiration date.

NQSOs are generally considered simpler, primarily because of tax. When you exercise NQSO, the bargain element is taxed as ordinary income. ISOs are more complicated, particularly because of the AMT, the potential for long-term capital gains, and the holding period requirements of a qualified sale.

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It’s important to know what happens to your employee stock options upon terminating your relationship with your employer. The answer to what happens can get complicated. Depending on why your employment status changes from employee to a former employee and what type(s) of employee stock option(s) you have, the rules surrounding what you can and can’t do with your equity compensation will vary.

Often, we’ll see a 90 day post-termination exercise window on employee stock options. This means that your options will need to be exercised within this time or they will be forfeited. You’ll want to keep in mind, however, that if the expiration date of the option preceeds the 90 day post-termination window, that will be the date you’ll need to exercise by in order to capture the benefit.

90 days is not always the case, and the best strategy is to check your plan document for the specific rules regarding your plan. But in the meantime, here is a primer of things to know now. Learn more