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.

  1. Grant

    The issuance of an award, such as a stock option, to key employees ...
  2. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  3. Vesting

    The process by which employees accrue non-forfeitable rights ...
  4. Non-Open Market

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

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  6. Exercise

    To put into effect the right specified in a contract. In options ...
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