A lot of new investors don’t know this, but you can actually exercise your stock options early. This means that you can buy the shares of stock at the exercise price, even if the current market value is higher. Some people might think that it’s not worth it to exercise their options early because they don’t have enough money to buy all the shares they’re entitled to. However, there are actually a few good reasons why you should consider exercising your stock options early.
1. You’ll Start Seeing the Benefits Sooner
If you wait to exercise your stock options when they vest, you’ll miss out on a lot of potential gains. The earlier you exercise your options, the sooner you’ll start seeing the benefits. For example, let’s say you have 100 vested options with an exercise price of $1 per share. The current market value of the shares is $10 per share. If you wait to exercise your options when they vest, you’ll only be able to buy 10 shares for $1,000. However, if you exercise your options early, you can buy all 100 shares for $1,000. So, even though you’re paying the same amount of money, you’re getting ten times as many shares by exercising your options early.
2. You Might Need the Money Sooner Than You Think
Another reason why you should consider exercising your stock options early is that you might need the money sooner than you think. Let’s say that after a year of owning the stock, it skyrockets in value and is now worth $20 per share. If you wait to exercise your options when they vest, you’ll only be able to sell 10 shares for $2,000. However, if you exercised your options early, you could sell all 100 shares for $2,000. In other words, by exercising your options early, you’re giving yourself more liquidity in case you need to access the cash sooner than expected.
3. It Could Motivate You to Monitor Your Stock More Closely
Finally, another benefit of exercising your stock options early is that it could motivate you to monitor your stock more closely. When people invest in stocks, they usually don’t think about them again until it’s time to sell them. However, if you own stock outright (i.e., not through options), it’s probably something that you check on a daily basis. By monitoring your stock closely,you can make sure that it’s performing well and take action if it isn’t. This way,you can maximize your profits and minimize your losses.
Exercising your stock options early comes with a lot of potential benefits. Not only will you start seeing the benefits sooner, but you also might need the money sooner than you think and monitoring your stock more closely can help ensure its success.. Carefully weigh the pros and cons before making a decision about whether or not to exercised early—but don’t forget that it’s an option!