Options and the IPO 53 The options can be nonqualified stock options, incentive stock options, or a combination of both. Most employees will receive nonqualified stock options (NSOs). Caution Stock granted before an IPO may be considered an unregistered security and subject to certain conditions. Check with your company about any restrictions. If the options are granted a significant period of time before the IPO, they can be priced very low without running into problems later on. Options granted close to the IPO must conform to the same conditions we discussed earlier in Lesson 8, "Exercising Your Options." For example, NSOs granted close to the IPO should not be discounted more that 10 percent, while NSOs granted much earlier can be severely discounted without getting the company in trouble with the authorities. Underwriters Underwriters are the firms that make the initial sales of the IPO stock to retail stock brokerages. They take responsibility for the success of the IPO and impose restraints of their own. For example, employers frequently grant options that have a lockup period (as discussed in Lesson 4, "All About Vesting, Lock-Ups, etc.") or restrict in some way an employee's freedom in regards to options. The lockup period can be anywhere from six months to more than a year. During this time, you can't exercise your options even if you plan to hold the stock. The underwriters do not want employees exercising options and selling stock just when the under- writer is trying to sell the public on the company. The underwriters fear investors will wonder why they should buy the stock when employees are selling.