Cashless Exercise

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.

BREAKING DOWN '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.

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RELATED FAQS
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    I am 29 years old and have taken a full-time position with a company who offers me the option to buy 5,000 shares currently ... Read Answer >>
  4. How do I change my strike price once the trade has been placed already?

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