Executing Your Stock Options Before You Sell

1-sentence takeaway: Executing your stock options transforms them from the right to buy shares at a set price into actual shares you own, which you can then sell on the secondary market.

Thinking about selling your pre-IPO company shares? If some of your equity is in the form of stock options, you’ll need to exercise them before you can sell. This means you’ll purchase the shares the options entitle you to buy. While this might seem like an extra step, it’s essential to unlock the full value of your equity and prepare it for a secondary sale.

What Does “Executing” Stock Options Mean?

Think of a stock option as a coupon offering you the chance to buy company shares at a predetermined price (the exercise price or strike price). Executing your options (also called exercising) is like redeeming that coupon—you pay the agreed-upon price and officially own those shares. Only then can you sell them on a platform like Earlyasset.

Why Exercise Before Selling?

You can’t sell options contracts on Earlyasset; you sell shares. Thus, executing your options is a required preliminary step if you wish to get liquidity from them.

Key Considerations Before Executing:

• Expiration Date: Options have an expiration date, after which they become worthless. Check your option agreement to confirm the deadline. Learn More: Expiration Date (for options)
• Exercise Price (Strike Price): This is the pre-set price you’ll pay for each share when you exercise. Learn More: Exercise Price Strike Price What It Means for You
• Tax Implications: Exercising options can trigger tax implications, depending on whether you have Incentive Stock Options (ISOs) or Non-Qualified Stock Options (NSOs). Learn More: Understanding Your Stock Options ISO vs NSO, Learn More: Ordinary Income Tax on Equity Compensation, Learn More: Alternative Minimum Tax AMT
• Company Approval: Some companies require board approval or have other restrictions on exercising options. Review your company’s stock option plan and/or consult with your company’s legal or HR team to understand any internal processes.
• Cost of Exercising: You’ll need the funds to cover the exercise price multiplied by the number of shares you’re buying. For example, if your exercise price is $1 and you’re exercising 1,000 options, you’ll need $1,000. (Remember: this is an example; your actual amounts may be higher or lower). Some companies offer cashless exercise options that help manage this cost. Learn More: Net Exercise Cashless Exercise Efficient Option Strategies

How Earlyasset Can Help:

While Earlyasset doesn’t provide tax or legal advice, our platform can give you an idea of what your shares might be worth after you exercise your options, which can help you make informed decisions. Use our Instant Offer tool to get an indicative price.

So here’s what we covered:

• Definition of executing stock options
• Why you need to exercise options before selling on Earlyasset
• Factors to consider before exercising: expiration date, exercise price, taxes, company approval, and cost
• How Earlyasset can help with indicative pricing