Estimate Time2 min

Knowing when to exercise stock options

Key takeaways

  • Understand both your immediate and long-term objectives before you decide to exercise.
  • Make equity compensation planning part of your overall financial plan to create a more thoughtful strategy.
  • Consider consulting a tax advisor before you exercise stock options.

Equity is an important part of your benefits package—helping you build your wealth as you plan for your most important financial goals today and tomorrow. Knowing when to exercise those options can have a big impact on your overall financial situation. When making the decision to exercise, both immediate and long-term objectives should be examined.

Some factors to consider when exercising stock options

Current and future financial needs
Is this an opportunity to improve current cash flow or make an investment for the future?

Current tax situation
Exercising stock options has tax consequences. Will you be in the same, a higher, or a lower tax bracket when you're ready to exercise your options? Could you create a plan to exercise options over several years to spread out the realization of taxes?

Risk tolerance
Are you ready to face the market's potential ups and downs, or are you seeking a more stable investment? You can find more information on managing risk of equity compensation here.

Stock option expiration
Do you need to act quickly, or do you have time? If the stock price were to pull back, would there be enough time to recover some or all the options' value?

Plan rules
Plan rules will determine the methods available to exercise your options. Will you need cash to pay for the exercise? Will there be time periods where no transactions will be allowed?

Time horizon for retirement
When will you be retiring/leaving the firm? What are the rules for vesting and expiration upon your separation?

Charitable gifting
There are tax-smart strategies to help more of your donation reach charitable organizations. You can find helpful information here.

Potential benefits of waiting
What are your expectations for the stock price appreciation and the market in general?

Equity compensation planning

This allows for a customized analysis of equity compensation to assist in developing an exercise strategy for stock options, understanding tax implications of your choices. Your Executive Services team can give you a better understanding of awards, so you can help maximize their value and create a thoughtful strategy for how they fit into your broader wealth management plan.

Once a sound strategy is in place for current positions, continue to think about how future grants will be approached—since grants will likely continue, ongoing review of these new positions should also continue. Planning for equity compensation is not a onetime event, and your dedicated Executive Services team can help you plan over time.

Exercising stock options can be complicated partly because the tax implications can vary widely. Consider consulting a tax advisor before you exercise stock options.

Your Fidelity Executive Services team can help you better understand stock options as well as their potential tax implications and answer key questions.

Let's work together

Your Executive Services team is here to help.

More to explore

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity Executive ServicesSM does not provide tax or legal advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Fidelity and the Fidelity Investments logo are registered service marks of FMR LLC.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

1079260.1.0