Post-Termination Exercise Period

What it means

When you leave your company, your time to buy your stock options is limited. This deadline is called the Post-Termination Exercise Period. You must use this time to decide if you want to pay the cost to own the shares or let them go.

Most companies give you 90 days after your last day of work. If you do not buy your shares by the deadline, your options will expire, and you lose the chance to buy them forever. A tax professional can help you understand your choices.

A simple example

Sam has 1,000 vested options with a strike price of $1.00 each. The strike price is the set cost to buy one share of stock. Sam leaves the company on June 1st. He has 90 days to decide. If he acts by August 30th, he can pay $1,000 to own 1,000 shares. If he waits until September 1st, he loses his right to buy the shares entirely.

Why it matters to you

• If you exercise (buy) your options, you must have the cash ready to pay for the shares.
• If you own Incentive Stock Options (ISO), exercising more than 3 months after leaving changes how they are taxed. They become Non-Qualified Stock Options (NSO) for tax purposes.
• Buying shares after you leave can lead to a surprise tax bill.

Common mistakes to avoid

• Forgetting your deadline and letting your options expire worthless.
• Assuming you have the same tax benefits if you buy your shares late.
• Failing to save money for the purchase price and potential taxes.

Words used on this page

• Exercise: The act of using your right to buy company stock at a set price.
• Incentive Stock Option (ISO): A specific type of stock option with potential tax benefits.
• Non-Qualified Stock Option (NSO): A standard type of stock option that is taxed as ordinary income.
• Strike Price: The price you pay to buy one share of stock, which is set when the company gives you the option.
• Vested: The point at which you have earned the right to buy your shares.