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Net exercise

Also called: net settlement

In one line

Exercising options by surrendering some of the shares to cover the strike price, instead of paying cash.

In plain English

In a net exercise, the company withholds a number of shares equal in value to the exercise cost, and you receive the net shares. No cash leaves your pocket, but you end up with fewer shares.

If you were explaining it to a 5-year-old

Instead of paying coins for your toys, you hand back a couple of the toys to cover the cost and keep the rest.

Why it matters when you sell

Net exercise removes the cash hurdle to exercising, though you get fewer shares — relevant when planning how many you'll have to sell.

Related terms

Cashless exerciseExercise (options)Sell-to-coverSpread (equity)

Put it to use

Cost to exercise + AMT

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Sources

A general market-practice term. See how we define and source the glossary in our methodology. General information, not advice.

Educational information only — not financial, tax or legal advice, and not an offer to buy or sell any security. Definitions are general; your own documents and local law govern your situation. PrivateTechShares is independent and not a broker or marketplace.