Stock Options—The 90-Day Deadline
Key Takeaways
Check your post-termination exercise window IMMEDIATELY
90 days is common but not universal—some are shorter
Let worthless options expire—don't spend money on bad bets
Stock Options: The Clock Is Ticking
"How long do I have to exercise my options?" — This is urgent. Check today.
Stock Option Basics
| Term | What It Means |
|---|---|
| Strike price | The price you pay to buy shares |
| Current price | What shares are worth now |
| In the money | Current price > strike price (valuable) |
| Underwater | Current price < strike price (worthless) |
| Vested options | You have the right to exercise |
| Unvested options | Forfeited at termination |
THE CRITICAL DEADLINE
After termination, you typically have 90 days to exercise vested options.
| Company Type | Post-Termination Window |
|---|---|
| Most companies | 90 days (standard) |
| Some startups | 30 days (aggressive) |
| 7 years | |
| Loom (2+ year tenure) | 10 years |
| Your company | CHECK YOUR AGREEMENT |
After the deadline, unexercised options expire worthless—even if they were valuable.
Why the 90-Day Rule Exists: Section 422 of the Internal Revenue Code requires ISOs to be exercised within 3 months to retain favorable tax treatment. After 90 days, ISOs automatically convert to NSOs with less favorable taxation.
The ISO to NSO Conversion
If you have Incentive Stock Options (ISOs):
| Timeline | Option Type | Tax Treatment |
|---|---|---|
| While employed | ISO | Favorable (potentially) |
| Within 90 days of termination | ISO | Still ISO treatment |
| After 90 days | Converts to NSO | Less favorable |
2025 AMT Considerations for ISO Exercise:
| Filing Status | AMT Exemption |
|---|---|
| Single | $85,700 |
| Married Filing Jointly | $133,300 |
| AMT Rate (under $239,100) | 26% |
| AMT Rate (over $239,100) | 28% |
If exercising ISOs would push you over the AMT exemption, you may owe Alternative Minimum Tax. Consult a tax professional before exercising significant ISO positions.
Exercise Decision Framework
Step 1: Are they in the money?
- Current price > Strike price = Yes, potentially worth exercising
- Current price < Strike price = No, let them expire
Step 2: Can you afford to exercise?
- Exercise cost = Strike price × Number of shares
- Do you have this cash available?
- ISOs: May also trigger AMT (Alternative Minimum Tax)
Step 3: What's the expected return?
- If company is public: Calculate actual value
- If company is private: Highly speculative
When to Let Options Expire
| Situation | Recommendation |
|---|---|
| Strike price > current price | Let expire (worthless) |
| Tiny spread (barely in the money) | Probably let expire |
| Private company, uncertain future | Consider carefully |
| Would need to take on debt | Don't exercise |
Don't throw good money after bad. Underwater options have zero value.
The Underwater Options
Tech worker with 60 days left to decide on underwater options
Setup
A client has stock options with a strike price of $50 when the current stock price is $35. They have 60 days left to exercise and are emotionally attached to the "value" they thought they had.
Client says:
“I have 10,000 options with a strike price of $50. The stock is at $35 now. I have 60 days left to exercise. I know they're underwater, but what if the stock goes back up? Should I exercise now just in case? I was counting on these being worth $300,000 when I joined. It feels wrong to just let them go.”
Practice Objectives
- 1Explain what "underwater" means in practical terms
- 2Calculate the actual cost of exercising vs. just buying shares
- 3Help them separate emotional attachment from financial reality
- 4Confirm that letting worthless options expire is the right choice
If you have stock options with a strike price of $50 and the current stock price is $35, what should you do?
Exercise immediately to lock in the shares
Wait until the last day of your exercise window
Let them expire—they have no value
Transfer them to an IRA