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?