Definition:

A broker-assisted cashless exercise is a method for exercising stock options where the broker automatically sells the underlying shares to cover the exercise price and taxes, resulting in a net cash payment to the option holder. It’s a convenient way for option holders to exercise their options without having to come up with the cash to cover the exercise price.

Key points about broker-assisted cashless exercise:

  • Automatic sale: The broker automatically sells the underlying shares to cover the exercise price and taxes.
  • Net cash payment: The option holder receives a net cash payment after the sale of the shares.
  • Convenience: This method is convenient for option holders, as it eliminates the need to come up with the cash to exercise the options.
  • Tax implications: The sale of the shares may trigger tax consequences, depending on the holding period and the option holder’s tax status.

Why is broker-assisted cashless exercise used?

  • Convenience: It’s a convenient way to exercise options without having to come up with the cash.
  • Tax efficiency: In some cases, cashless exercise can be more tax-efficient than selling the options directly.

However, it’s important to note that broker-assisted cashless exercise may not be suitable for all option holders, and it’s essential to consult with a financial advisor to understand the potential tax implications and risks.

In essence, a broker-assisted cashless exercise is a method for exercising stock options where the broker automatically sells the underlying shares to cover the exercise price and taxes, resulting in a net cash payment to the option holder.