Option Exercise: Frequently Asked Questions

 
I hear a lot about nonqualified stock options (NSOs) and incentive stock options (ISOs). What is the difference between the two?

NSOs are more traditional stock options that do not meet certain IRS requirements for special tax treatment. With NSOs, you will pay ordinary income tax, social security tax, and Medicare taxes equal to the difference between the fair market value when you exercise the stock options and the grant price.

ISOs meet the IRS requirements for special tax treatment. With ISOs, you do not have to pay regular income taxes at the time your exercise, but you must hold your shares for at least one year from the date of exercise and two years from grant date. When you sell your shares after the required waiting period, you will be subject to a capital gains tax based on the difference between the sale price and the grant price.

Does William Blair & Company require me to open a margin account to perform a cashless option exercise?

No. As soon as your advisor executes your order regarding the exercise of your stock options, he/she will forward a check to your company for the proceeds from the sale of stock less the cost of the stock, brokerage commissions, and fees.

How long does a stock exercise transaction take?

Once your William Blair & Company advisor receives your signed paperwork, your account can be established, your transaction can be processed, and the proceeds are generally in your account within 10 business days. To shorten the process, we suggest you open an account today even if you may not be exercising any options for some time.

What happens to my options if I leave my employer?

There are usually special rules in the event you leave your employer, retire, or pass away. See your employer's plan rules for details.

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