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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    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
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    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
  3. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
  4. Why is purchasing stocks on margin considered more risky than traditional investing?

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  5. What happens if I cannot pay a margin call?

    Minimum margin is the amount of funds that must be deposited with a broker by a margin account customer. With a margin account, ... Read Answer >>
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