How to Exercise Non Qualified Stock Options

Non-qualified stock options are made available through your employer.

Non-qualified stock options are a type of compensation offered by your company that allows you to buy stock at a price that is originally set to market value or above. If the market goes up--and the price of the stock increases beyond what you would pay for your non-qualified shares, then you can pay your lower, set price and receive the full value of the shares. The price you pay is called the strike price and, when you decide to exercise your non-qualified stock options, that is the price that you will pay for the shares you wish to purchase.

Instructions

1. Check the market price of the stock and be sure that it is on an upward trend. You may not wish to exercise your non-qualified stock options if the price isn't holding steady above the strike price.

2. Be sure that you are able to use your stock options now. Some plans have waiting periods and all plans expire at some point. Check your paperwork to be sure that you are allowed to exercise your non-qualified stock options before pursuing the matter.

3. Contact a broker. A broker is able to purchase the shares directly from the company at your strike price. When you meet with him, bring all the paperwork on your non-qualified stock options. Your company should have given you a packet of information when you were first offered the plan. If you cannot find it, contact someone in your benefits office at your work and request a new package.

4. Choose the number of shares you'd like to buy. Your plan will determine a maximum number of shares permitted and, in some cases, a minimum.

5. Determine, with your broker, whether you'll have to perform a cashless exercise. This means that the broker lends you the money to buy the stock if you do not have the cash on hand. This is common since buying large amounts of stock may take capital that you don't have available.

6. Allow the transaction to process and then watch the market carefully. You may wish to sell your stock right away, since you'll already have made a profit by purchasing at strike price. If the market appears to be climbing steadily, however, you can hold onto your shares and sell them for even more money at a later date.

Tips & Warnings

• Use a qualified broker. You don't want to get caught up in a scam.

References

• Stock Options Advisors: Non-qualified stock options frequently asked questions
• KB Associations: Tax and Financial Strategies For Employee Stock Options
• Tax Guide for Investors: Nonqualified Options in General