Leaving a Company With Stock Options: The 90-Day Window, the Tax Bill, and What to Negotiate

People who have spent years accumulating stock options are often surprised to learn how little of the value survives a departure that was not planned around it. The unvested portion is gone the day employment ends. The vested portion is alive, but on a clock, and exercising it costs money the option holder may not have and creates a tax bill for shares that may not be sellable. Nothing about this is hidden; it is all in a plan document that most employees have never opened.

This article explains what happens to options on separation, the federal tax rule that makes 90 days the standard window, what exercising actually costs, the difference for RSUs, and what can be negotiated on the way out. It is general information, not tax advice; the numbers in any specific case need a tax professional.

Three Documents Control Everything

Your rights are not in your offer letter or your employment agreement. They are in the equity incentive plan, the grant notice, and the option agreement for each grant. Together they set the vesting schedule, what counts as a termination, how "cause" affects vested options, the length of the post-termination exercise period, whether the company can repurchase shares, and whether any acceleration applies. Get all three before you resign or sign anything. Most companies provide them through the equity administration portal; if not, ask HR in writing.

What Happens to Unvested Options

They are forfeited on the termination date under almost every plan, and Ohio courts enforce clear forfeiture language. The narrow exceptions are acceleration provisions: single-trigger acceleration on a change in control, double-trigger acceleration when a change in control is followed by termination, and occasionally partial acceleration on termination without cause in an executive agreement. If you have a vesting date within weeks of a planned departure, the timing of your resignation matters. Unvested equity at termination covers forfeiture in detail.

The Post-Termination Exercise Window

Vested options survive termination, but only for the period the plan allows. Ninety days is the most common, and it runs from the termination date, not from when you learn about it. Plans typically shorten the window to zero for a termination for cause, meaning vested options are cancelled, and extend it to twelve months or more for death or disability. A growing number of technology companies have extended the standard window to several years for employees with a minimum tenure, so read your plan rather than assuming.

The window is a hard deadline. An option not exercised by the last day of the period expires, and there is no remedy for missing it. Calendar it the day you give or receive notice.

Why 90 Days: The ISO Rule

The 90-day convention comes from the tax code. Incentive stock options, the kind that can qualify for capital-gains treatment on the full gain, keep that status only if the holder exercises within three months after employment ends. Companies set the plan window at 90 days to match. Some plans allow a longer window, in which case an incentive option exercised after the three-month mark is treated as a non-qualified option for tax purposes. That is not a disaster, but it changes the tax math, and it is one reason to look at the exercise question before the three months run rather than after.

What Exercising Actually Costs

Exercising means buying the shares at the strike price. For 10,000 options at a $4 strike, that is $40,000 in cash, due at exercise. On top of that comes tax. For non-qualified options, the spread between the strike price and the fair market value at exercise is ordinary income, subject to withholding, in the year you exercise. For incentive options, there is no regular income tax at exercise, but the spread is an adjustment for alternative minimum tax, which can produce a large bill in a year when you have sold nothing.

At a public company, the shares can be sold immediately, which lets you fund the exercise and the tax from the proceeds through a cashless exercise. At a private company, there is no market. You are paying the strike price and potentially the tax out of pocket for shares you cannot sell, valued at a number the company set in its most recent appraisal. Whether that is a good bet depends on the company, and many people rationally let private-company options expire rather than fund the exercise. Some plans allow a net exercise, where the company withholds shares to cover the strike price; ask whether yours does.

RSUs Are Different

Restricted stock units do not require exercise and have no strike price. Vested RSUs at a public company have already been delivered as shares and are yours. Unvested RSUs are forfeited at termination. At private companies, RSUs are often "double-trigger," vesting on time but not settling until a liquidity event, and the plan will say whether time-vested but unsettled units survive termination. Many do, some do not, and the difference can be the largest number in your separation.

Termination for Cause and Clawbacks

Most plans cancel vested but unexercised options on a termination for cause, and some allow the company to reclaim gains from exercises in the months before. The plan's definition of cause controls, and it is usually broader than the one in an employment agreement. If an employer characterizes a separation as for cause, the equity consequences are often the real reason, and the characterization is worth contesting in writing before the window closes.

What to Negotiate on the Way Out

Employers routinely agree to equity terms in a separation that are not in the plan, because the plan usually gives the administrator discretion. The most common asks: an extended exercise window, six or twelve months instead of 90 days; acceleration of the next vesting tranche, especially if the termination date falls just before one; treatment of the separation as without cause under the plan; a net exercise or a company loan to fund exercise; a cash payment in lieu of options at a private company; and confirmation in the separation agreement of the exact number of vested shares and the deadline. Each of these is worth more than a week of severance for most option holders, and each is only available before the release is signed.

The Bottom Line

Stock options are a promise with an expiration date, and leaving starts the clock. Get the plan and grant documents, confirm the vested number and the last exercise day, understand what exercising will cost in cash and tax, and raise the extended window and acceleration questions before you sign a release. The value of options is real, but only for people who read the deadline before it passes.

Frequently Asked Questions

What happens to my stock options if I quit?

Unvested options are forfeited. Vested options can be exercised within the plan's post-termination exercise period, usually 90 days, after which they expire. Whether you resigned or were terminated without cause rarely changes this; termination for cause usually cancels vested options too.

How long do I have to exercise options after leaving?

Whatever the plan says. Ninety days is the most common because incentive stock options lose their tax status if exercised more than three months after employment ends. Some plans allow longer, and most extend the window for death or disability.

Do I have to pay to exercise stock options?

Yes. Exercising means buying the shares at the strike price, in cash, plus tax on the spread for non-qualified options or a possible alternative minimum tax adjustment for incentive options. At a public company a cashless exercise can fund both from the sale; at a private company the money comes out of pocket.

Can I negotiate a longer exercise window in my severance?

Often. Plans usually give the administrator discretion, and employers agree to extended windows, acceleration of a tranche, or a cash-out in separations. Ask before signing the release.

What happens to RSUs when I leave?

Unvested RSUs are forfeited. Vested RSUs at a public company were already delivered as shares. At a private company with double-trigger RSUs, check whether time-vested but unsettled units survive termination; the plan decides.