What happens when you exercise an option?

“Exercise an option” means that if you hold of a put option, you can sell a security at a stated price within a particular timeframe, or if you control a call option, you can buy a security at a stated price within a specific timeframe.

How much does it cost to exercise stock options?

In this example, the exercise cost of 10,000 shares is $50,000. However, you don’t have to exercise all your options at one time. If you only exercise 5,000 options (leaving you with 5,000 that can be exercised later), the exercise cost is $25,000, or 5,000 multiplied by $5 per share.

Is exercising stock options taxable?

You have taxable income or deductible loss when you sell the stock you received by exercising the option. You generally treat this amount as a capital gain or loss. For specific information and reporting requirements, refer to Publication 525.