Should I exercise my options now or wait?

Exercising early can start valuable tax clocks and lower your bill — but it costs cash and puts your money at risk in an illiquid company. Here's how to weigh it.

The core trade-off

Exercising converts options into shares by paying the strike price — and sometimes tax. Do it early, when the spread is small, and you minimise tax and start your capital-gains and QSBS clocks. But you're putting real cash into shares you can't easily sell, and you could lose it if the company stumbles.

Reasons to exercise now

Low spread = low tax. The smaller the gap between value and strike, the less AMT (for ISOs) or income (for NSOs) you trigger.
Start the clocks. Early exercise begins the holding periods for long-term and QSBS treatment, which can save a lot later.
You're confident and can afford it. If you believe in the company and the cash at risk is manageable.

Reasons to wait

Cash and risk. Exercising ties up money in an illiquid asset that could go to zero.
Uncertainty. If the company's future is unclear, waiting preserves optionality — options only have value if things go well.
No liquidity to cover tax. If exercising triggers a bill you can't pay without selling, and you can't sell, waiting may be safer.

A simple way to decide

Model the cost. Strike price plus any AMT or income tax. Use the exercise & AMT calculator.
Check your window. If you're leaving, your post-termination window may force the decision. See exercise windows.
Weigh conviction vs cash at risk. Only exercise early with money you can afford to lose.
Consider a partial exercise. You don't have to do all or nothing.

Frequently asked questions

Does exercising early really save tax?

It can, significantly. Exercising when the spread is small keeps the taxable amount (AMT for ISOs, income for NSOs) low, and starts the clock toward lower long-term capital-gains and QSBS treatment. The trade-off is cash out of pocket and risk, since the shares are illiquid.

What happens if I exercise and the company fails?

You could lose the cash you spent on the strike price and any tax you paid, since the shares may become worthless. That's the key risk of early exercise — never exercise with money you can't afford to lose.

Should I exercise if I can't afford the tax?

Usually not, unless you can access liquidity to cover it. If exercising triggers an AMT or income bill you can't pay, you may be forced into a difficult position. See our guide on affording to exercise.

Get the numbers before you decide

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