what to do with vested stock options

What to do with vested stock options: a practical, beginner‑friendly guide that defines vested options, compares ISOs and NSOs, explains exercise methods, tax rules (AMT, capital gains), liquidity ...

2025-11-16 16:00:00

By Alex Carter

Article rating

4.7

105 ratings

Bitget offers a variety of ways to buy or sell popular cryptocurrencies. Buy now!

A welcome pack worth 6200 USDT for new users! Sign up now!

What to Do with Vested Stock Options

Short summary: This guide explains what to do with vested stock options and the main choices an option holder faces—exercise, hold, sell, or let options lapse—while highlighting tax consequences, liquidity limits, company policies, and portfolio‑concentration risks. Read on to learn the mechanics for ISOs and NSOs, exercise methods (cash, cashless, stock‑swap, early exercise with 83(b)), tax timing (ordinary income, AMT, and capital gains), private‑company constraints (409A, tender offers, post‑termination windows), financing options, practical strategies, and a decision checklist to apply to your situation.

Note on timing and coverage: this article uses established guidance from equity‑compensation specialists and wealth managers (Carta, Secfi, J.P. Morgan, Investopedia, NerdWallet, Morningstar, Zajac Group) to explain practical choices and tradeoffs. It is informational only and not tax, legal, or investment advice.

截至 2026-01-15，据 J.P. Morgan Wealth Management 报道，员工股权激励在财富与税务规划中持续成为高净值客户和从业者关注的核心议题。

Definition and basic concepts

The question what to do with vested stock options refers to employee equity compensation decisions once options have become exercisable. A stock option is a contractual right to buy company shares at a fixed strike (exercise) price during a defined period. Key stages:

Grant date: when the company awards the option and sets the strike price.
Vesting: when you earn the right to exercise portions of the grant (time‑based, performance‑based, or hybrid).
Exercise: when you pay the strike price to convert options into shares.
Expiration: the last date you can exercise the option.

Important terms:

Strike / exercise price: the fixed price per share you must pay to exercise.
Fair market value (FMV): current company share price (public market price or 409A valuation for private companies).
Intrinsic value (spread): FMV minus strike price; this is the immediate paper gain when exercising.
Post‑termination exercise window: common rule (often 90 days) that limits how long ex‑employees can exercise vested options.

Types of stock option grants and how they matter

Incentive Stock Options (ISOs)

ISOs are a U.S. tax‑favored option for employees. Key points:

If you meet holding‑period rules (more than 2 years from grant and more than 1 year from exercise), a qualifying disposition lets gains be taxed as long‑term capital gains rather than ordinary income.
At exercise you generally have no regular income tax withholding, but the bargain element (spread) is an adjustment for the alternative minimum tax (AMT), which can create a tax bill in the year of exercise.
Disqualifying dispositions (selling before meeting holding periods) convert some or all gain into ordinary income on the sale.

ISOs can deliver powerful tax benefits if you can manage AMT exposure and liquidity needs.

Non‑qualified Stock Options (NSOs / NQSOs)

NSOs create ordinary income at exercise equal to the spread (FMV − strike). Employers typically withhold taxes at exercise for public companies, and the income is reported on your W‑2. Subsequent gains or losses after exercise are capital gains/losses based on holding period.

Because NSOs trigger ordinary income immediately, timing exercises matters for cashflow and tax brackets.

Early exercise, RSUs and other award types

Early exercise: some plans allow exercising unvested options early to start holding periods (often used with an 83(b) election). This converts potential future upside into shares sooner—useful in private startups where strike prices are low.
Restricted stock units (RSUs): RSUs convert to shares upon vesting and generally create ordinary income at vesting equal to FMV; no exercise step is required.
Restricted stock awards (RSAs): shares granted at grant (sometimes subject to vesting) where 83(b) elections can be filed.

Each award type affects timing of tax and liquidity, so identify your grant type before deciding what to do with vested stock options.

The moment options vest — key decisions

Once options vest you typically have these choices:

Do nothing (leave unexercised until later or expiration).
Exercise and hold (pay strike, keep shares).
Exercise and sell (cashless exercise or immediate sale, common for public companies).
Exercise partially or stagger exercises across time.

Which option you choose depends on:

Cash available to exercise and to pay taxes.
Your view of the company’s future and personal risk tolerance.
The company’s liquidity (public or private) and any transfer restrictions.
Tax consequences (ISOs vs NSOs and AMT risk).
Employer rules (post‑termination windows, blackout periods).

How to exercise — methods and mechanics

Cash exercise (paying cash to buy shares)

A cash exercise is straightforward: you pay the strike price (and sometimes a small fee) and receive shares. For private companies, this may require wiring funds and working with the company’s equity portal. Consider:

Cash needs: paying strike price and potential tax withholding (for NSOs) or AMT exposure (for ISOs).
Holding shares increases concentration risk in employer stock.

Cashless exercise / sell‑to‑cover

Common for public companies: a broker executes the exercise and immediately sells enough shares to cover the exercise price and taxes. Net proceeds are remitted to you. Advantages:

No out‑of‑pocket cash required.
Immediate liquidity and reduced concentration risk.

Limitations include transaction fees and potential timing risk (market price at sale).

Stock‑swap and broker‑assisted exercises

Stock‑swap: if you already own company shares, some plans permit using those shares to pay the strike. Broker loans or margin can also fund an exercise; this introduces credit and market risk.

Broker‑assisted exercises are common for public companies and handled via plan administrators or brokerage platforms.

Early exercise and 83(b) election (when available)

If early exercise is permitted for unvested options, you can exercise early and file an 83(b) election within 30 days. Benefits and risks:

Benefit: start the capital‑gains holding clock earlier; possible low taxable income if FMV is low at exercise.
Risk: you pay cash for shares that may be forfeited if you leave before vesting and you cannot recover taxes paid if shares are forfeited.

Consult a tax advisor before filing an 83(b); the election is time‑sensitive and irrevocable.

Taxes and holding‑period rules

Tax treatment is central to what to do with vested stock options.

Tax at exercise vs tax at sale

NSOs: exercise creates ordinary income equal to the spread; employer often withholds taxes. Subsequent sale results in capital gain/loss on the difference between sale price and FMV at exercise.
ISOs: no regular income at exercise (no withholding) for qualifying employees, but the AMT can be triggered. A qualifying sale (meeting holding periods) treats the entire gain as capital gain.

AMT considerations for ISOs

Exercising ISOs can create an AMT adjustment equal to the spread at exercise. AMT may cause a current‑year tax liability even without a sale. Important factors:

Size of spread at exercise and your other AMT preferences.
Potential to recover AMT via AMT credit in later years.

Model AMT scenarios before exercising large ISO blocks.

Long‑term vs short‑term capital gains

For ISOs to receive long‑term capital gain treatment the sale must occur more than 2 years after grant and more than 1 year after exercise.
For non‑ISO shares, long‑term capital gains apply if held more than 1 year after acquisition.

Holding for long‑term gains can reduce tax rates, but requires taking market and concentration risk.

Record‑keeping and tax reporting

Keep the following documents:

Grant agreements and plan descriptions.
Exercise confirmations and proof of payment.
FMV documentation for private companies (409A valuations around exercise date).
Copies of 83(b) election filings if used.

Share these records with your CPA to ensure proper reporting and to model tax outcomes.

Liquidity considerations (private vs public companies)

Public company liquidity options

Public employees can often exercise and sell quickly (subject to blackout periods and insider‑trading rules). Common options include:

Immediate cashless exercise and full or partial sale.
Holding shares subject to insider trading windows and company policies.

Market liquidity allows flexible timing but exposes you to market price volatility.

Private company liquidity constraints

Private companies present challenges:

No public market price; FMV is determined by 409A valuations for tax purposes.
Limited secondary market transactions. Liquidity often requires company‑run tender offers, secondary markets facilitated by the company, or investor buybacks.
Many plans set a short post‑termination exercise window (commonly 90 days for ISOs), which raises urgency and potential for needing financing.

When private, exercising early can be attractive to start holding periods, but you must weigh the cash cost and risk of illiquid shares.

Financing options to exercise

If you lack cash, these options exist (each with risks and costs):

Personal loans or margin loans (credit risk and margin calls).
Dedicated financing providers who lend against unexercised options or newly acquired shares; terms vary and can include non‑recourse structures but often carry high fees.
Company programs or broker loans (if offered).

Analyze interest, fees, and the lender’s recourse before borrowing to exercise.

Risk, portfolio management and concentration

Employer stock concentration is a common source of personal financial risk. Considerations:

Many advisors recommend limiting single‑stock exposure (no universal rule—depends on risk tolerance and other assets).
Holding employer equity ties your human capital (job, future compensation) to financial capital (stock)—this increases overall risk.
Diversification through selling at least some vested shares is the simplest risk‑management move.

Balance desire for upside with the risk of catastrophic loss if both job and stock decline.

Practical strategies and common approaches

Immediate sell (sell‑to‑cover or full sale)

When to choose this:

You need liquidity or diversification.
You do not want to assume concentrated stock risk.
You hold NSOs and prefer to pay tax now rather than risk higher taxation later.

Advantages: immediate cash, tax withholding handled, reduces concentration.

Hold for long‑term gain (tax‑driven strategy)

When to choose this:

You hold ISOs and can manage AMT; you want favorable capital gains treatment.
You believe in significant future upside and can tolerate volatility and concentration risk.

This strategy can increase after‑tax gains but requires planning for AMT and liquidity.

Staggered exercise/sales (laddering)

Spread exercises and sales across multiple years to manage tax brackets and reduce market timing risk. Laddering can smooth tax exposure and diversify sale prices.

Hedging and derivatives (for public‑company executives)

Large equity holders sometimes use collars or options to hedge downside. Legal constraints (insider‑trading rules and company policies) and complexity mean hedging is typically for experienced executives and must be done with professional counsel.

Let options lapse

If options are underwater (strike above FMV) or the cost of exercise exceeds potential benefit, letting options expire can be the sensible choice.

Employer policies, legal and compliance constraints

Company rules can shape what to do with vested stock options:

Blackout periods may restrict trading around earnings or material events.
Insider trading policies and required preclearance procedures must be followed.
Share‑ownership policies can require executives to hold a portion of their company shares.
Post‑termination exercise windows (commonly 90 days for ISOs) can force quicker decisions.
Transfer restrictions may prevent selling shares until a liquidity event.

Always consult plan documents and your equity administrator before acting.

Tax planning and professional advice

Because tax outcomes can be complex (AMT, withholding, state tax), engaging a CPA or tax advisor is important when deciding what to do with vested stock options. Professional assistance helps you:

Run AMT simulations for ISO exercises.
Model after‑tax proceeds under different sale timings.
Determine whether an 83(b) election or early exercise makes sense.
Coordinate exercise timing with other income events to manage marginal tax rates.

Use equity‑compensation calculators and work with advisors who understand option mechanics.

Decision framework and checklist

Before acting, ask these questions:

What type of option do I hold (ISO vs NSO)?
What are my strike price, FMV, and intrinsic value now?
How long until expiration and are there post‑termination windows?
Do I have the cash to exercise and cover taxes? If not, are financing options available?
What are the tax consequences at exercise and at sale (including AMT)?
Is the company public or private (liquidity constraints)?
How concentrated would my employer equity be after exercising?
Are there blackout periods or insider trading constraints?
Have I consulted a qualified tax advisor or financial planner?

Use this checklist to prioritize actions and run scenarios.

Examples and short case studies

Example A — Private‑company employee with 90‑day post‑termination window

Sana works at a private startup and leaves the company. She has vested ISOs and a 90‑day exercise window. The company’s last 409A places FMV slightly above her strike but liquidity is uncertain. Choices:

If Sana can afford the strike and potential AMT, early exercise before termination or exercising soon after leaving (if allowed) could start holding periods for favorable capital gains.
If funds or liquidity are lacking, Sana might not exercise and risk losing the options after the 90‑day window.
She could explore financing providers or company buyback opportunities but should weigh fees and recourse.

Example B — Public‑company employee doing cashless exercise and immediate sale

Marco holds vested NSOs at a public company. He chooses a cashless exercise and immediate sale (sell‑to‑cover) to diversify and avoid market risk. The broker sells shares to cover strike and taxes; Marco receives net proceeds. This reduces concentration and provides liquidity but locks in the tax impact at exercise.

Example C — ISO holder exercising early to start the long‑term holding period

Aisha receives ISOs at a low strike price. She can early‑exercise before a significant valuation increase and files an 83(b). She pays little to acquire shares and starts the clock for long‑term capital gains. She accepts the risk that if the company fails or she forfeits shares, taxes paid cannot be recovered. She also models AMT impacts and keeps detailed documentation.

Frequently asked questions (FAQ)

Q: What is the 90‑day rule?

A: The “90‑day rule” commonly refers to the post‑termination exercise period where many option plans require employees to exercise vested options within 90 days after leaving the company. If you fail to exercise within this window, options may be forfeited. Check your plan documents—some employers extend this period or convert ISOs to NSOs on termination.

Q: When should I file an 83(b)?

A: An 83(b) election is typically filed within 30 days of early exercising restricted stock or early‑exercising unvested options where shares are subject to vesting. It can be beneficial when the FMV is low and you want to start the capital gains clock, but it carries risk if shares are later forfeited.

Q: How does AMT work with ISOs?

A: Exercising ISOs creates an AMT preference equal to the spread (FMV minus strike) at exercise. That spread can increase AMT taxable income and trigger AMT liability. Modeling and potentially exercising in smaller blocks across years can help manage AMT exposure.

Q: Can I get financing to exercise options?

A: Yes—options holders sometimes use personal loans, margin, or specialized financing to exercise. These financing methods come with interest, fees, and varying recourse; understand the terms and risks before borrowing.

Q: What happens if I leave before vesting?

A: Unvested options are typically forfeited when you leave. Some companies may accelerate vesting in certain circumstances (e.g., layoffs or acquisition), but you must check your grant agreement.

Notes and legal disclaimers

This article is for informational and educational purposes only and does not constitute tax, legal, or investment advice. Individual circumstances vary; always consult a qualified tax advisor, CPA, or financial planner before exercising options or making tax‑sensitive decisions.

Decision checklist (quick reference)

Confirm option type (ISO vs NSO).
Check strike price, current FMV, and intrinsic value.
Verify expiration and post‑termination exercise windows.
Estimate tax at exercise (ordinary income or AMT) and at sale (capital gains).
Assess cash availability or financing options.
Evaluate company liquidity and transfer restrictions.
Consider concentration risk and diversification needs.
Review company insider trading policies and blackout windows.
Consult a tax advisor and keep records.

Appendix

Glossary of key terms

Grant: the award of stock options with a set strike price.
Vest: when options become exercisable according to the vesting schedule.
Exercise: paying the strike price to convert options into shares.
Grant date: the date options are awarded.
Cliff: an initial vesting milestone (commonly one year) before further vesting begins.
FMV (Fair Market Value): current share value (public price or 409A value in private companies).
Strike price: price to buy a share under the option.
ISO: Incentive Stock Option (tax‑favored for employees).
NSO/NQSO: Non‑qualified Stock Option (taxed as ordinary income at exercise).
AMT: Alternative Minimum Tax (can be triggered by ISO exercises).
83(b): an elective tax filing to recognize income at grant/exercise for restricted shares.

Typical timelines and deadlines

Grant → Vest: typical four‑year schedule with one‑year cliff and monthly/quarterly vesting thereafter.
Exercise window (while employed): until expiration (commonly 10 years from grant for many plans).
Post‑termination exercise: commonly 90 days for ISOs, but plan terms vary.
83(b) election deadline: 30 days from date of exercise or grant (if applicable).

Further action: review your specific plan documents, gather grant and exercise records, and consult a qualified tax professional to model AMT and after‑tax proceeds.

更多实用建议：若您持有公司股权或即将面临行权决定，联系熟悉股权激励的税务或理财顾问以获得个性化规划；同时，若您需要安全管理并转移加密资产或交易，请优先选择并了解 Bitget Wallet 与 Bitget 的服务与安全政策，以便在合规与安全的环境下管理相关资产。

更多资源与支持：探索 Bitget 的钱包与交易产品，了解如何在安全平台上管理数字资产与跨平台资产组合（不含投资建议）。

进一步探索如何权衡流动性、税务与风险—使用本文的决策清单作为起点，并与专业顾问配合执行。

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.