Understanding Your Stock Options
Stock options are not shares — they're the right to buy shares at a fixed price. You profit only when the company's share value exceeds your strike price. At that point, you can exercise (pay the strike price, receive shares) and either hold or sell.
ISOs (Incentive Stock Options) have tax advantages for US employees: if you hold for 1+ year after exercise and 2+ years after grant, gains are taxed at long-term capital gains rates. NSOs don't have this benefit — the spread at exercise is ordinary income.
ISO
Tax-preferred option type for employees
4 yr
Standard vesting period
90 days
Typical post-termination exercise window
$100K
Annual ISO exercise limit (IRS)