The availability of funds to exercise the options
, the timing of their taxation, restrictions on transferability, and transfer taxes are all concerns that advisors and clients frequently don't address.
Employees with stock options usually are vested in them over a certain period, and can exercise the options
by buying the stock at a stated price -- often much lower than the market value of the shares when vested.
Because Jane can exercise the options
before the stock vests, her available strategies are:
If the ISO holding period is not satisfied, the optionee generally recognizes compensation income on the date of the disqualifying disposition, equal to the excess of the stock's FMV over the amount paid to exercise the option
In lieu of using cash to exercise the option
, J can use $1,000 of previously acquired employer stock.
Second, because the fixedpayment obligation is fully defeased, FM need not draw on other sources of capital to exercise the option
. However, if FM does not exercise the fixedpayment option and X exercised the put renewal option, FM would be required to draw on other sources of capital to satisfy its put renewal rental obligations.
A can make a gift of the stock option to B [his children] for federal gift tax purposes only after A has completed the additional required services because only upon completion of the services does the right to exercise the option
become binding and enforceable.
A call option is a contingent claim because the holder has the right, but not the obligation, to exercise the option
. If the option is in-the-money (the FMV of the underlying assets exceeds the option's exercise price as of the date of grant), the holder can profit from appreciation in the underlying asset while limiting the capital at risk.
Because he does not have to pay the $10,000 in cash, E is more apt to exercise the option
under this cashless exercise approach.
Underwriters had 30 days from the IPO to exercise the options
. GM last week had raised $20.1 billion in an IPO of common and preferred shares in what was the biggest U.S.