- /
- /
You just accepted a new job. Better title, better pay, better team. You give your two weeks' notice.
Then your manager mentions, "Don't forget about your stock options. You've got 90 days."
Suddenly you realize: You have 25,000 vested stock options with a $2 strike price. Current share price is $28. That's $650,000 in intrinsic value—but it'll cost $50,000 to exercise.
You have 90 days to decide. The clock is ticking.
The Default Rule: 90 Days or Your Options Expire
When you leave your company—whether you quit, get laid off, or are terminated—your vested stock options don't stay open indefinitely.
The standard rule: You have 90 days from your last day to exercise vested options. After that, they expire. Worthless.
It doesn't matter if the company is growing or stock price is climbing. If you don't exercise within the deadline, you lose the entire value.
What "exercise" means: You pay the strike price to convert options into actual shares.
Example:
- Vested options: 10,000
- Strike price: $5
- Cost to exercise: $50,000
- Current share price: $35
- Value if you exercise: $350,000
- Value if you don't: $0
Why Companies Have This Rule
The 90-day window exists because of tax law, not cruelty.
For ISOs: The IRS requires options be exercised within 90 days of termination to maintain ISO tax treatment. Longer windows would convert them to NSOs with less favorable tax treatment.
For NSOs: Companies could allow longer periods but don't to simplify administration, limit former employees on cap table, and prevent indefinite option holding.
Should You Exercise?
This is a $50,000 to $500,000+ decision. Here's how to think through it:
Question 1: Do You Have the Cash?
Exercising requires paying the strike price upfront.
If you don't have the cash, your options:
- Let options expire (lose potential value, but no cash out)
- Exercise and immediately sell (public companies only—pocket the difference)
- Take a loan (home equity, 401(k), family)
- Use financing service (ESO Fund, Secfi, EquityBee will front cost for share of proceeds)
Question 2: Is the Company Going to Succeed?
If private, you're betting there'll be a liquidity event (IPO or acquisition) and stock will be worth more than your strike price.
Red flags (don't exercise):
- Burning cash with no path to profitability
- Unstable leadership or departures
- Competitors winning market share
- Last funding was a down round
- Hearing layoff/pivot/shutdown rumors
Green flags (exercising may be worth it):
- Profitable or cash-flow positive
- Revenue growing consistently
- Just closed strong funding round
- Credible path to IPO/acquisition within 3-5 years
Question 3: What Are the Tax Implications?
ISOs:
- No ordinary income tax at exercise (but may owe AMT)
- Hold 1+ year after exercise AND 2+ years after grant = long-term capital gains (20% vs. 37%)
- Sell before meeting periods = "disqualifying disposition," part taxed as ordinary income
NSOs:
- Owe ordinary income tax on spread at exercise
- Company withholds taxes
- Future gains taxed as capital gains
AMT trap with ISOs: Exercise large number of ISOs = tens of thousands in AMT without selling any stock. Work with CPA to calculate exposure.
Question 4: Can You Afford to Lose the Money?
If company fails or stock drops below strike price, shares become worthless. Cash spent to exercise is gone.
If losing this money would derail goals (house, retirement, kids' college) or you lack emergency fund, don't exercise.
The "Cashless Exercise" for Public Companies
If publicly traded, you may be able to do cashless exercise (same-day sale):
- Exercise options
- Broker immediately sells shares
- Broker deducts exercise cost, taxes, fees
- You receive net proceeds
Benefit: No upfront cash needed
Downside: If holding ISOs, same-day sale triggers disqualifying disposition (lose preferential tax treatment)
What If You Miss the Deadline?
If you don't exercise within 90 days, options expire. No grace period. No "I forgot" exception.
You lose:
- Intrinsic value
- All years you held them while vesting
- Potential future upside
We've seen people lose $100K, $500K, even $1M+ because they missed the deadline.
How it happens:
- Didn't realize they had 90 days
- Didn't have cash and didn't explore financing in time
- Focused on new job/job search and forgot
- Thought deadline was from notice date, not last day
Set reminder: Mark your last day and count 90 days forward. Set multiple reminders starting at day 60.
Early Exercise: The Loophole
Some companies allow early exercise (exercising before vesting).
Why do this?
- Start clock on long-term capital gains
- Lock in low strike price before appreciation
- Avoid 90-day deadline (already exercised)
Risk: If you leave before shares vest, company buys back unvested shares at your exercise price (you break even, don't profit).
Your 90-Day Action Plan
Week 1-2: Find option agreement, confirm deadline, determine vested options, calculate exercise cost
Week 3-4: Assess cash availability, research financing if needed, work with CPA on tax implications, research company prospects
Week 5-8: Decide whether to exercise, arrange financing if yes, make peace with walking away if no
Week 9-12: Execute the exercise, confirm transaction complete, update financial records
The Bottom Line
Stock options can be life-changing wealth—or a painful missed opportunity. The difference is planning and awareness.
Key takeaways:
- You typically have 90 days after leaving to exercise
- Exercising requires cash upfront (unless cashless exercise at public company)
- Decision depends on cash position, company prospects, risk tolerance
- Missing deadline = options expire worthless
- Work with CPA on tax implications
Don't let the 90-day deadline sneak up on you. The moment you decide to leave, put this on your radar.
This content is for educational purposes only and should not be considered as tax, legal, or investment advice. Stock option agreements vary by company. Always review your specific agreement and consult with qualified CPA and financial advisor before making exercise decisions.
The 90-day window is common but not universal. Some companies have shorter windows. Always confirm your specific deadline.
AMT rules are complex and vary by circumstances. Scenarios are simplified and may not reflect actual liability.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial.
Chesapeake Financial Planners | 2402 Scotlon Ct, Forest Hill, MD 21050 | (410) 652-7868 | www.chesapeakefp.com