Tips To Navigate Stock Options

This section of the video explores what to do with startup stock options—both while employed and after leaving a company. It emphasizes evaluating offer quality upfront and making strategic decisions about exercising options based on company outlook and personal risk tolerance.

• Understand the offer: When joining a startup, it's important to know both the strike price (cost to buy shares) and the fair market value (FMV) of the shares. A significant gap between these numbers indicates more potential upside.
• Don’t exercise too early: While employed, it's typically better to wait before exercising options. Exercising early ties up personal capital and carries risk if the company performs poorly or fails before a liquidity event.
• Exception for early-stage employees: If the cost to exercise is very low (e.g., a few hundred dollars), it may make sense to do so early to start the long-term capital gains clock for better tax treatment.
• After leaving the company: Most startups require options to be exercised within 90 days of departure. If there's confidence in the company’s future, it may be worth exercising all or part of the options—otherwise, it might be best to walk away.
• Weigh risk vs. return: Exercising options is a personal investment decision. If the company is struggling or unlikely to succeed, even favorable strike prices can result in total losses.