I worked for a startup and as an employee, was “granted” 34,000 “Options” and “vested” in 8,000 “Options (ISO)”. The company has not gone public yet but likely will in the next 3-5 years. I just left the company and the exit paperwork says “Upon termination, you have three months to exercise your Options before they expire.” I have no idea what this means. What happens if I exercise them? What happens if I don’t? What does it even mean to exercise them? Please help.
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There’s a number of options and a strike price. Say you have 10,000 options with a strike price of $10. You have to pay $10 x 10,000 = $100,000 to buy them.
But ideally the company has IPO’d and each share is now with $30.
So you pay $100,000 to exercise the options but they’re worth 3x that on the open market. So you can turn around and sell them for a $200,000 gain pre-tax.
There are other possible paths if the company sells instead of IPOs or if you can sell the shares back.
In your case you can buy them and wait to see if the market price at ipo is higher. If it’s not then you lost money.
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