Option Exercise Windows

You have a set time period to exercise your vested options after leaving a company. Some companies offer 90 day windows. Others offer 7 year windows. In this article, we cover how exercise windows work and the recent move to extended windows. Plus, we will show you which companies with extended exercise windows are hiring today.

Understanding Exercise Windows
Companies (Still) Hiring with Extended PTE Windows
ISO to NSO Conversion

Understanding Exercise Windows

At venture-backed companies, Stock Based Compensation (SBC) has historically functioned like this:

  1. A company creates an option pool to be allocated among current and future employees.
  2. An employee receives some amount of stock options, which vest over a certain schedule. Options have a 10-year term from the grant date. As long as you stay with your company, your options do not expire for 10 years.
  3. If an employee leaves the company, he or she has three months, or 90 days, to exercise their vested options during the Post-Termination Option Exercise (PTE or PTOE) window. Otherwise, the vested options return to the option pool, and your company will give these options to future employees.

At many private companies, this process still exists. In recent years, many have debated whether to extend PTE windows or keep them at 90 days. One major consideration is that vested options are a form of compensation for work that has been done already. Many may not have the money to exercise their options within 90 days after departing a company. In the interest of fairness, retaining employees, and having an advantage in hiring top tier talent, many companies have amended their stock option plans to allow options to be exercisable for up to ten years from the grant date, whether or not an option holder is still with the company. Although your unvested options still return to the company after departure, you will have the ability to exercise your vested options for a far longer period than previously available.

If you have Incentive Stock Options (ISO), they are legally required to convert into Non-Qualified Stock Options (NSO) 90 days post departure. If you have an extended PTE and your vested ISOs convert into NSOs, your tax situation will change, so be aware of that. We cover ISO to NSO conversions later on in this article. If you are confused about ISOs and NSOs, you can read our article on the basics of SBC here.

Be on the lookout! Alongside extended exercise windows, some companies have written into their stock plans the ability to repurchase shares at the current common FMV price with or without a shareholder’s consent. You should ask about this when you join a company. Please see our list of questions to ask when you receive your offer letter.

Companies (Still) Hiring with Extended PTE Windows

We think it’s important to call attention to these companies who have extended their PTE windows - many of whom are hiring! There is a repository on GitHub maintained by Zach Holman, which lists the many companies with extended exercise windows. We've reproduced the list below for companies hiring for at least five positions with the format: Company / Careers Page / PTE Window Length. If you would like to be included on this list or if there are companies that we should remove, please let us know.

Some of the above companies offer extended PTE windows after 1 to 3 years of employment. For instance, some options may have a 7 year exercise window post departure after a 2-year cliff (i.e. you have worked at the company for 2 years). Make sure to ask how you qualify for an extended PTE window well in advance of vesting your options.

ISO to NSO Conversion

Let’s consider a scenario. You work at Company A, which offers a 10-year exercise window. You have 1,000 ISOs, all of which are vested but unexercised. Out comes your dream job offer at Company B. You may not be too concerned. You think you have 10 years to exercise your options. Although you can cover the cost of exercising, you have an added layer of cost due to taxes. Your exercise may trigger a taxable event via the Alternative Minimum Tax (AMT). You can read more on AMT here.

Despite Company A’s favorable PTE window, what happens to your ISOs? They turn into NSOs three months after leaving your former company because ISOs are only for full-time employees. Some companies will allow you to convert your ISOs into NSOs at any time. An ISO to NSO conversion has no cost and should be possible at any time during your employment. You may want to ask for it well in advance of a planned departure. Additionally, we encourage you to spend time with the ISO to NSO documentation, checking that the expiration date is unchanged and that there are no unexpected added provisions compared to your original option grant.

All content herein does not constitute legal, tax, or investment advice for any purpose. Topics discussed or referred to on StockBasedComp are based on authorities which are subject to change. It is recommended you speak with a qualified professional to advise on your personal situation.