Cashless Exercise

AAA

DEFINITION of 'Cashless Exercise'

A transaction that is used when exercising employee stock options (ESO). Essentially, what you do here is borrow enough money from your broker to exercise the options. You then simultaneously sell enough shares to pay for the purchase, taxes, and broker commissions.

INVESTOPEDIA EXPLAINS 'Cashless Exercise'

What you are doing is technically called buying on margin. The brokerage lets you buy on margin in this case because they know there will be a quick repayment. The advantage of this technique is you don't need the cash on hand.

RELATED TERMS
  1. Vesting

    The process by which employees accrue non-forfeitable rights ...
  2. Grant

    The issuance of an award, such as a stock option, to key employees ...
  3. Non-Open Market

    Describes an agreement to purchase or sell shares made directly ...
  4. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  5. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  6. Exercise

    To put into effect the right specified in a contract. In options ...
Related Articles
  1. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

    A breakdown of the do's and don'ts of trading options in a Roth IRA.
  2. Options & Futures

    5 Secrets You Didn't Know About Roth IRAs

    Between its generous tax benefits at retirement and no required minimum distributions, a Roth IRA is well worth considering if you're eligible to have one.
  3. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  4. Options & Futures

    Trade Covered Calls On High Dividend Paying Stocks

    We explain the risks, rewards, timing, and profit and loss considerations for covered calls with dividend stocks.
  5. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?
  6. Investing

    What Tech Companies Seeking Funding Must Overcome

    Tech companies face a unique set of challenges, including a need for timely responses to changes in technology and difficulty recruiting the right talent.
  7. Economics

    Vietnam -- New Asian Hot Spot For Tech Investment

    Vietnam now has a rapidly expanding tech sector that's attracting investors from around the globe due to low business costs and highly skilled workers.
  8. Options & Futures

    Top Brokers Offering Tools For Covered Calls

    Here are the brokers that offer the best tools for investors and traders to write covered calls and covered puts.
  9. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.
  10. Investing

    What are Preference Shares?

    Preference shares, also referred to as preferred shares, are equity shares that give the shareholders certain rights ahead of common shareholders. For instance, when the corporation declares ...

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center