Personal Finance - Cashless Exercise - Planwise BlogPlanwise Blog

Depending on your occupation and the company you work for you might get something known as Employee Stock Options (ESO). If you do get ESO then you have the ability to do what is called a cashless exercise. Sounds a bit funny right? It does to me too, but lets figure out what it really means.

What is a cashless exercise?

Back to ESO, you need this in order to do this ?cashless exercise.? What this means is that you borrow enough cash from your broker to ?do whatever it is you are doing with that money. While that is going on, you are simultaneously selling your ESO to repay your broker and any fees that are associated with doing so. These might include the broker fees and taxes.

It is almost like a quick loan in the sense the broker is letting you borrow money but knowing that he/she is going to be paid back?immediately, or as soon as your ESO gets sold.

Why would you do this?

This could vary from individual to individual. It could be a financial emergency ? by needed to pay your mortgage on time, or just an impulse buy that you really want but don?t have enough cash saved up or on hand to do it. You could put it on your credit card, but then you get interest charges and nobody likes those. Again, the reasons why you or anyone would do this will vary by situation. it is just another option you can take if you have ESO and don?t want to use a credit card.

You must remember you are selling your shares of your ESO to pay back the broker so keep track of how much ESO you have and perhaps try to buy some more to keep that extra cash reserve that you could forget about.

In the end.

This is just another way to finance something but it is short-term. You need to have Employee Stock Options to do this, and those are not unlimited, you hold a certain amount of shares, but you can always buy more. As the titles says it?s a cashless exercise but only in the sense that you didn?t have the cash on hand?immediately. Cash was still used to do whatever it was you needed it for.

As always do what you can to be fully aware of what you are doing and make a rational decision.

Photography?for this post by Neil Favila

cashless exercise, education, personal finance

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