You could also use it to fund specific savings goals. Or, depending on your financial situation and plan, it might be appropriate to use this money right away in other areas of your life. A second benefit of the exercise-and-sell-immediately strategy is the ability to diversify your assets.

A large position in a single company stock exposes you to concentration risk. With concentration risk, you retain the possibility that the value of your stock options can swing drastically in a short period of time. If you exercise and sell, you remove the inherent volatility associated with concentration risk. And again, you can then use the proceeds to invest through a better diversified, more strategic investment portfolio. A final advantage of the exercise-and-sell-it-all strategy?

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A bird in the hand is better than two in the bush, after all. If you exercise and sell, you know what you the final outcome of your transaction will be. No more guessing, projecting, or hoping for a future value of your stock options.

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No more seeing the value of your employee stock option statement change. When you exercise and sell, you know the exercise price, you know the market price when you exercise or hopefully very close to it , and you know the final sale price or very close to it. Therefore, you know what will you get once that transaction is complete. Any profit you realize will be taxed as ordinary income. Ordinary income receives no preferential tax treatment and is taxed at the highest marginal tax rate — which could be a potential downside when it comes to exercising and selling all of your options and subsequent shares.

If you have a lot of profit potential in your employee stock options, receiving that profit after implementing this strategy could push you into a higher tax bracket. All else being equal, a higher tax bracket means more tax owed and less money in your pocket.

How can I sell my private company stock?

Essentially, you lose some tax efficiency when you exercise and sell everything all at once. In some cases, you could pay less in taxes if you use a different approach and exercise and sell your stock options over a period of time. You should talk to an advisor with experience in both leveraging stock options and understanding tax planning to run the numbers.

Then, compare various strategies available to you.

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Another disadvantage of exercising and selling immediately is one that specifically pertains to incentive stock options: you will not get to perform a qualifying disposition. Again, this is a tax-related issue. You need to set risk parameters when you sell options, just as you would with buying stocks. Understanding how much you stand to earn — and how much you could lose — will help you weigh out your risks.

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Selling puts allows you to set the strike price of a stock at what you would like to buy it for. Selling puts is even more attractive than selling covered calls, because you do not have to post the capital needed to purchase shares. Selling puts allows you to win whether the market moves up, down, or sideways.

There are some risks associated with options trading. However, if you trade options using specific strategies, they can be even less risky than trading stocks. According to the Chicago Board of Options Exchange, selling options is one of the few strategies that outperforms a buy and hold strategy over time. Now that you know more about selling options for income, here are a few free resources to further your investing skillset:.

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This gives you the maximum investment in company stock, providing you with the potential for gains from increases in stock value and payment of dividends if any. You may need to deposit cash into your brokerage account or borrow on margin to pay for your shares. You will also likely pay brokerage commissions, fees, and taxes. You purchase your option shares and then and immediately sell them. In many cases, your brokerage will allow this transaction without using your own cash, with the proceeds from the stock sale covering the purchase price, as well as the commissions, fees, and taxes associated with the transaction.

This choice provides you with cash in your pocket to put into other investments or use as you otherwise see fit. You exercise the option and then immediately sell just enough shares to cover the purchase price, commissions, fees, and taxes.

Your resulting proceeds will remain in the form of company stock. Stock Swaps: A stock swap is another form of cashless stock option exercise. With a stock swap, you exchange company shares that you already own to pay for the shares obtained through the exercise of your stock option. The main benefit of this choice is avoidance of taxes. Keep in mind, however, that you must hold the shares used in the exchange for a stated period of time typically one or two years in order to avoid the transaction being treated as a sale and incurring tax costs.

Tax implications will play a key role in your decisions on when and how to exercise your stock options. Remember, poor choices can have a devastating effect on your financial well being.

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Always consider consulting with a tax expert before exercising any stock option. The IRS recognizes two types of stock options: statutory and non-statutory. Options granted through an employee stock purchase plan or incentive stock option ISO plan are considered statutory stock options. Tax Considerations for Incentive Stock Options.