Dating of stock option grants
Unless otherwise specified, all of the items listed in this section apply to both types of options: Although the mechanics of non-statutory stock options are relatively simple in nature, their exercise can have significant financial planning ramifications in many cases.The value of these options can impact the size of an employee’s taxable estate, and the timing of sales and exercises should be carefully coordinated with other financial factors in the employee’s life, such as other sources of income or upcoming deductions that can be written off against option income.The employer grants the employee the right to buy a certain number of shares within a given time period (known as the offering period) at a preset price, which is usually the closing price of the stock on the date of the grant.
When the employee exercises the options, he or she must initially buy the stock at the preset price (known as the exercise price), then sell it at the current market price and keep the difference (referred to as the bargain amount).
The exercise process itself can take a few different forms.
It is usually determined by the rules in the plan offered by the employer, as well as the employee’s personal financial circumstances: Both NQSO and ISO plans typically require that employees complete some sort of vesting schedule before they are allowed to exercise their options.
For example, John exercises his stock at per share when the price is and pays withholding tax on the per share difference.
He holds onto his shares at that time and waits for the price to rise.