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
  1. What are the SEC regulations on exercising stock options?

    Learn how the SEC and IRS regulate employee stock options, including the exercise of options and the sale of options, and ... Read Answer >>
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    Once a put option contract has been exercised, that contract does not exist anymore. A put option grants you the right to ... Read Answer >>
  3. What are the tax implications if I sold my private company stock options?

    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?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  5. Do I always need to use a stock broker?

    Do I need a stock broker to buy stocks for myself, even if I get a stock brokers license? Or is there a rule that makes it ... Read Answer >>
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    A put option is a contract that gives the option holder the right, but not obligation, to sell a set amount of shares (1 ... Read Answer >>
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