Why are employee stock options exercised early?

If the particular plan allows, employees may exercise their awarded stock options before they become fully vested employees. A person may choose this option to obtain a more favorable tax treatment. Of course, it does introduce the risk that the company may not be around when the shares are fully vested.

What happens when you exercise options early?

What is early exercising? Early exercise is the right to exercise your stock options before they vest. Your option grant should say whether you can early exercise. Similarly, if you have NSOs, early exercising helps start your holding period sooner so you may pay the lower long-term capital gains tax when you sell.

Is exercising an option a taxable event?

With NSOs, you pay ordinary income taxes when you exercise the options, and capital gains taxes when you sell the shares. With ISOs, you only pay taxes when you sell the shares, either ordinary income or capital gains, depending on how long you held the shares first.

How early can you exercise an option?

American-style options can be exercised by the owner at any time before expiration. Thus, the seller of an American-style option may be assigned at any time before expiration. As of this writing, all equity options are American-style contracts.

Why are American options never exercised early?

For an American-style call option, early exercise is a possibility whenever the benefits of being long the underlier outweigh the cost of surrendering the option early. For instance, on the day before an ex-dividend date, it may make sense to exercise an equity call option early in order to collect the dividend.

Can you exercise options early on Webull?

If you can support the exercise/assignment – Webull at our sole discretion and without prior notice may exercise any in-the-money options that remain in the account on their expiration day as long as they are in-the-money by $0.01 or greater. Otherwise, you may liquidate your option before 4:00 EDT on expiration day.