A stock option grants the right (but not obligation) to buy company stock at a predetermined price (strike price) for a defined period. Two main types: Incentive Stock Options (ISOs) have favorable tax treatment if held long enough (1 year from exercise, 2 years from grant) — capital gains rates rather than ordinary income. Non-Qualified Stock Options (NSOs) are taxed at exercise as ordinary income on the bargain element (FMV minus strike), regardless of holding period. ISOs can trigger Alternative Minimum Tax (AMT). Exercise timing strategies (early exercise, exercise-and-hold, cashless exercise) materially affect after-tax outcomes.
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Stock Option
August 22, 2026 · Aditya Gupta
Investing
Related terms
401(k)
A 401(k) is an employer-sponsored retirement plan where employees contribute pre-tax salary that grows tax-deferred until withdrawal. The…
Active Management
Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any…
Alpha
Alpha is excess return relative to a benchmark, adjusted for risk (beta). Positive alpha means an investment outperformed…
Asset Allocation
Asset allocation is the percentage split of your portfolio across asset classes — typically stocks, bonds, and cash,…
Backdoor Roth
The Backdoor Roth is a strategy for high earners (above the Roth IRA income limit) to contribute to…
Beta
Beta measures a stock's volatility relative to the overall market (S&P 500 = beta of 1). Stocks with…
