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Lesson 7. When to Exercise Your Options > What Are Your Options? - Pg. 35

When to Exercise Your Options 35 Hold On to the Options One of the great features of employee stock options is that you are not required to do anything. You can decide the best course of action for your financial situation, once the options are vested. This wait-and-see feature can take some of the pressure off you in terms of deciding what to do with the options. Don't let this lead to complacency, however. Here are some reasons to hold on to your options: · It costs you nothing. --There are no holding costs for options. If you choose to do nothing for a while, you are not risking any money. Your only loss will be if the stock goes up and then back down before you act. · You don't want to own the stock, but want to participate in its growth. --You may not want to own the stock for a variety of reasons we have already covered. However, you would like to profit from the company's anticipated growth. Holding NSO options lets you share in the growth with no risk and no outlay of cash. At the appropriate time in the future, you can exercise your options and immediately sell the stock. Except for the tax consequences, this strategy is very smart. Tip Another way to spread out the tax is to exercise one-half of the options in December and the other half in January. That spreads the tax liability over two tax years. · You want to shift taxes. --It is possible to time your exercise and sale of the stock to minimize your tax liability. For example, most companies allow employees to exercise options for some period after retirement, often up to a year. An individual with a high salary might wait until the tax year after retirement to exercise the options and sell the stock. This would shift the income