Is better to hold stocks for a year or go with the cashless option when exercising stock options?

Answer 1

The cashless option could be really really painful to your pocket if the price of the share drops in 24 hours!! I wouldn't if i were you, I'd hold them for a year. You could make or loose serious money by the cashless option-it's a huge gamble-up to you!!

Answer 2

I assume you are asking for tax purposes. For tax reasons it would be better to hold for the year. You should be taxed at the capital gains rate instead of the ordinary income rate. That means you will have to come up with the purchase price on your own in order to buy the stock. If you exercise 1000 options at $5, you still need to come up with the $5000 even if the stock you buy is worth $20 a share (or $20000 total) on the day you exercise.

With a cashless option the brokerage charges you a small fee and deducts the $5000 purchase price out of the proceeds of the sale. Very convenient and very quick!

It really depends on when you need the money from the options and if you have the initial cash to buy and hold!