Initiate an Option exercise cost Transaction cashless Hold Your Stock Options If you believe the stock price will rise over time, you can take advantage of the long-term nature of the option and wait to exercise them until the market price of the issuer stock exceeds your grant price and you feel that you are ready to exercise your stock options. Just remember that stock options will expire after a period of time.
Stock options have no value after they expire. Top Initiate an Exercise-and-Hold Transaction cash-for-stock Exercise your stock options to buy shares of your company stock and then hold the stock.
Depending on the type of the option, you may need to deposit cash or borrow on margin using other securities in your Fidelity Account as collateral to pay the option cost, brokerage commissions and any fees and taxes if you are approved for margin. The advantages of this approach are: benefits of stock ownership in your company, including any dividends potential appreciation of the price of your company's common stock. Top Initiate an Exercise-and-Sell-to-Cover Transaction Exercise your stock options to buy shares of your company stock, then sell just enough of the company shares at the same time to cover the stock option cost, taxes, and brokerage commissions and fees.
The proceeds you receive from an exercise-and-sell-to-cover transaction will be shares of stock. You may receive a residual amount in cash.
Your stock option loses its option value the moment you exercise because you no longer have flexibility around when and if you should exercise. As a result many people wonder when does it make sense to exercise an option. Tax Rates Drive the Decision to Exercise The most important variables to consider when deciding when to exercise your stock option are taxes and the amount of money you are willing to put at risk. There are three kinds of taxes you should consider when you exercise your Incentive Stock Options the most common form of employee options : alternative minimum tax AMTordinary income tax and the much lower long-term capital gains tax. You are likely to incur an AMT if you exercise your option exercise cost after their fair market value has risen above your exercise price, but you do not sell them.
Top Initiate an Exercise-and-Sell Transaction cashless With this transaction, which is only available from Fidelity if your stock option plan is managed by Fidelity, you may exercise your stock option exercise cost to buy your company stock and sell the acquired shares at the same time without using your own cash.
The proceeds you receive from an exercise-and-sell transaction are equal to the fair market value of the stock minus the grant price and required tax withholding and brokerage commission and any fees your gain. The advantages of this approach are: cash the proceeds from your exercise the opportunity to use the proceeds to diversify the investments in your portfolio through your companion Fidelity Account.
Tip: Know the expiration date for your stock options. Once they expire, they have no value.
You sell option exercise cost shares at the current market value. If you had waited to sell your stock options for more than one year after the stock options were exercised and two years after the grant date, you would pay capital gains, rather than ordinary income, on the difference between grant price and the sale price.