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Lesson 8. Exercising Your Options > Using Stock to Exercise Options - Pg. 40

Exercising Your Options 40 This alternative only works with vested nonstatutory stock options. Frequently, nonemployees who hold NSOs have the same access to the cashless exercise as employees. Taxes and the Cashless Exercise Fortunately, there are no additional taxes associated with the cashless exercise. While it appears to you as one motion, it is actually two transactions: 1. 2. First, the options are exercised and the stock is bought. Then the stock is sold. The tax liability is the same as if you had paid cash for the stock and sold it. You will pay ordinary income tax on the spread between the exercise price and the fair market price. Using Stock to Exercise Options There is another way to accomplish an almost cashless exercise by using stock you already own to pay for the new stock. The idea is to "trade in" stock you own for more shares under the exercised option. Caution You must own stock in the company already to use it to exercise options. You can acquire the stock in the open market or through previously exercised options. See Lesson 9 for more details. For example, you own 1,500 shares of stock. The current market value is $25 per share. You own options to buy 1,000 shares of the same stock at an exercise price of $10 per share. Normally you