4 Factors to Help You Decide When to Exercise Your Employee Stock Options

1. 4 Factors to Help You Decide When to Exercise Your Employee Stock Options

2. Some experts recommend you should hold onto your employee stock options as long as possible for you. When the expiration dates are near, then you have got the liberty to exercise them freely. It gives the stock an opportunity for additional price appreciation. However, this could backfire as well, as you may seem prices going down when your stock nears its expiry. So, definitely this advice is not favourable for everyone.

3. There are many factors which must be taken into consideration about deciding when to exercise employee stock options, such as- circumstances, comfort level with risk, tax situation should be taken into consideration. Given below are the four factors that will help you determine the best time for exercising employee stock options:

4. 1. Financial Circumstances:

5. If you are not ready to execute the options because you are hoping that stock price will ramp up, then consider your current requirement for cash in comparison to the potential of additional gains. If you are in dire need of funds and your options have value, then exercise them as soon as you can. A higher stock price in the future is uncertain. There are various reasons to exercise them early such as- a sudden illness, funds for a down payment on a house or vehicle, another opportunity in which you can invest & gain profits, etc.

6. 2. The Return/Risk Trade-off:

7. Value is an integral component of employee stock options (ESO). Time value will increase if there are many years left for the expiration date. Along with time value, the risk of stock going down keeps on scaring people. The gains you would realize by exercising today would disappear.

8. You might want to withdraw risk and drop potential additional benefits if: • Present availability of funds in hand could bestow a significant improvement in your financial situation based on your financial requirement. • Prospects for the company stock look attractive doesn’t look promising to you

9. 3. Tax-Planning Opportunities:

10. Tax planning involves calculating your expected income and deductions over the upcoming years. Exercising all your options too soon or in one year could make you fall into a higher tax bracket. There may be tax reasons to exercise some options at present and rest of the options in the later years. It might be a sensible idea to exercise some options every year rather than wait until the expiration date to exercise employee stock option at all.

11. 4. Market’s State:

12. The volatility of your company stock and the inconsistency of market conditions should be considered as a whole. The market will neither be always in your favour nor against you.

13. You can reduce the chances of risk and boost returns by utilizing advanced strategies that consist of selling calls and buying puts on the company stock. Consider all factors to make a smart decision that favours your requirements to exercise stock options in a beneficial way.

14. Contact Us +1 (650) 262-6670 information@esofund.com www.employeestockoptions.com