You’ve just been laid off. The laptop is boxed, HR is sending paperwork—and a clock starts ticking. For many startup employees, vested stock options must be exercised within 90 days of termination or they expire. That window can feel impossibly short when cash is tight and taxes are murky. Here’s a practical, step-by-step playbook to make a smart call under pressure.

1) Get your dates and dollars on one page

Before you stress about taxes or financing, collect the facts:

• Deadline. Find the “post-termination exercise” (PTE) window in your grant agreement—often 90 days, but some plans extend to 6–12 months. Remember: even if your company offers a longer window, ISO tax treatment generally ends 3 months after employment ends; exercises after that are typically treated as NSOs for tax purposes (the plan sets the deadline, the tax code sets the ISO treatment rules).

• What’s in the money? List each grant lot (grant date, strike price, shares vested). Compare strike vs. today’s fair value.

• Tax posture. ISOs vs. NSOs, state of residence, and whether AMT might be triggered if you exercise ISOs.

• Your liquidity. How much cash can you deploy without jeopardizing rent, insurance, and job-search runway?

Now map “how to pay” options to your numbers. For a quick primer—cashless exercise, tender offers, loans, and structured secondary sales—this overview of paying for startup stock options explains the trade-offs in plain English.

2) Choose a path: exercise, exercise some, or let them lapse

With your spreadsheet set, pick a direction—starting with your highest-conviction lots:

• Exercise and hold if (a) your strike is far below fair value, (b) you can cover the purchase price and taxes, and (c) you accept concentration risk.

• Sell-to-cover / partial exercise if you want exposure but need to cap cash outlay or tax surprise. Many employees exercise a slice of high-delta lots now and reassess others before the window closes.

• Walk away if the math doesn’t pencil out (thin or falling secondary prices, big tax bill, short cash runway, or company-specific red flags).

If your layoff is fresh and you’re still triaging money and benefits, AP’s service explainer What to do if you’re concerned you might be laid off — or if you’ve lost your job covers immediate actions around severance, savings, and job-search momentum—useful context before you commit cash to equity.

A quick scenario. You hold 6,000 ISOs at a $1 strike. Secondary indications suggest ~$7/share. Exercising all 6,000 costs $6,000 and could trigger AMT. One play: exercise 1,500 shares now (lowest strike, earliest grant), revisit 2,000 more in a week if the liquidity picture holds, and let the rest lapse if financing doesn’t materialize. That staggers both cash and tax risk.

3) How people actually fund exercises (and the traps to avoid)

You have more than one way to finance an exercise—each with strings attached:

• Cash on hand. Cheapest, but stress-test your budget for a 3–6-month job search.

• Sell-to-cover through a tender or secondary. If your company runs periodic tenders or allows approved secondary transfers, you can sell a portion to fund the rest. Watch for transfer restrictions, board consent, and blackout dates.

• Exercise loans (recourse vs. non-recourse). Loans preserve cash but add fees and downside risk. In non-recourse structures, the lender typically keeps the upside if you default; in recourse loans, you are on the hook beyond the shares.

• Company-supported programs. Some late-stage companies offer extensions or financing tied to tender windows. Extensions can be helpful, but often convert ISOs to NSOs—fine for flexibility, but tax treatment changes.

Two guardrails as you evaluate offers: (1) model total cost of capital (interest + fees + any profit-sharing), not just the headline rate; (2) confirm what happens if the company’s valuation falls or an exit is delayed.

4) The tax tripwires you can’t ignore

You don’t need to become a tax pro, but you do need to know the big levers:

• ISO vs. NSO. ISOs can confer favorable long-term capital-gains treatment if you meet holding periods, but exercising ISOs can trigger the Alternative Minimum Tax (AMT) in the year of exercise. NSOs generally create ordinary income on the spread at exercise, often reported on your W-2. The IRS lays out the core rules in Publication 525.

• The 3-month ISO clock. After most terminations, ISOs must be exercised within three months to retain ISO status; otherwise, the option is still exercisable if your plan allows it, but it’s treated as an NSO for tax purposes. Publication 525 also addresses these timing rules.

• Form 3921. If you exercise ISOs, expect Form 3921 from your employer or transfer agent for your records; it helps compute basis and potential AMT in the year of exercise.

• 83(b) is a different animal. The 83(b) election applies when you receive restricted property (like early-exercised, unvested shares) and must be filed within 30 days of the transfer. It’s not a tool you can pull out after you’ve been laid off to change how vested options are taxed. For the mechanics and deadline, see IRS guidance on the 83(b) election.

If you want a plain-language refresher before deciding, AP’s primer 3 must-knows about employee stock options walks through option types, selling decisions, and diversification.

5) Protect your runway while you decide

The equity decision doesn’t happen in a vacuum—health coverage and cash flow matter:

• COBRA. You typically have 60 days from the date of your COBRA election notice to opt in. That timeline often overlaps with the 90-day exercise window, so decide early how premiums fit your budget. USA.gov’s explainer on COBRA coverage outlines your rights and timing.

• Emergency cash. If you need liquidity for living costs, do not hollow out your safety net to chase optional upside. AP’s Financial Wellness hub collects timely, non-promotional explainers on building buffers, handling debt, and navigating benefit changes.

• Ask HR two questions. (1) “Is there an upcoming tender or secondary window?” and (2) “Does the plan allow a PTE extension?” Get the answers in writing; align your move with known liquidity events.

6) A bare-bones decision tree (use this to cut through the noise)

• If you can afford to lose the premium (strike × shares) and the taxes, and you have high conviction in the company’s path to liquidity → consider a partial exercise now, then reassess.

• If paying to exercise would jeopardize essentials (rent, insurance, job search), or if transfer restrictions make funding too costly → skip or scale back.

• If your company is running (or likely to run) a tender/secondary within your window → weigh a sell-to-cover or a loan tied to that event instead of an all-cash exercise today.

• If your options are out of the money (strike ≥ fair value) → it’s rational to let them lapse unless you have a specific thesis and a near-term catalyst.

7) Common pitfalls (and how to avoid them)

• Underestimating taxes. Model AMT for ISO exercises and ordinary income for NSOs. A basic calculator plus Publication 525’s rules can prevent April surprises.

• Over-concentration. If you exercise, set a policy to sell into future liquidity events—e.g., “sell 25% at the first window” to diversify.

• Signing a one-sided financing deal. Read the recourse language twice. Ask for an APR-equivalent and an example payoff table before you agree.

• Waiting until day 89. Brokers, plan administrators, and company sign-offs all take time. Put your order in days—not hours—before the deadline.

Bottom line: You don’t have to exercise everything—or anything—on principle. Put dates and dollars on one page, choose a funding path that doesn’t break your runway, and let taxes guide (not paralyze) the decision. In a layoff, keeping options open also means protecting your cash and your next move.

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