The 90-day exercise window, and why some companies extend it

Most employee stock options come with a deadline. In many plans, you have 90 days after your employment ends to exercise your vested options — to pay the strike price and convert them into shares. Miss the window, and the options typically expire, whatever they were worth.

The 90-day convention is not arbitrary. For incentive stock options (ISOs), U.S. tax rules generally require exercise within three months of termination to keep ISO tax treatment. Companies adopted 90 days as the default because the tax code did.

Some companies now offer extended post-termination exercise windows — a year, several years, or the remaining life of the option. This is often presented as generosity, and sometimes it is. But the mechanics deserve a clear eye.

For ISOs, exercising after the three-month mark generally means the options are taxed as non-qualified options instead. The spread between your strike price and the current fair market value becomes ordinary income at exercise, not a capital gains question later. A longer window can quietly mean a larger tax bill.

An extended window does not make the shares liquid. If the company is private, exercising means paying real money, plus possibly taxes, for shares you cannot sell. The window being open longer does not change what the shares are worth to you today.

Extended windows can also come with conditions: they may apply only if you leave after a certain tenure, only in certain departure types, or they may be revocable by the board. And a rising 409A valuation — the fair market value of the common stock — raises the taxable spread the longer you wait.

Read your grant agreement and the plan it references. Find the window, the conditions, and whether ISO treatment survives it. Then decide with numbers: the equity audit on the stay-or-go page estimates the cash required to exercise and the paper value at stake. Tax outcomes depend on your situation, and a tax professional is worth the fee here.