Exercising employer given stock options

[gekkoplus]

I own my employer's stock options which are currently in the money valued at around 50K. I was awarded these options 2 years ago when I joined the company and for most of the time until now they were out of money since economy nose dived after I was granted these options. But now with more than half of options have been vested (4 year vesting period) and stock market came back up strongly, these stock options are now in the money. If same trend continues and company stock keeps going up, I expect another additional 50-75K in coming 2 years or so.

Another thing is these vested stock options will expire after 2 years from now. So if I have to exercise them, I can opt to exercise this year and next year, or I can exercise them all in next year.

My question is what should my exit strategy be? Currently stock price is at its historical highest but looking at company doing so well, I expect the stock price to go even higher (how much higher I don't know). I am also worried about tax consequences. Exercising all options at once means I will be at a higher tax bracket and paying more taxes.

Any advice is appreciated.

[safari]

You only pay taxes when you sell your stocks and make money. If you simply exercise the options by buying stock for the grant price (assuming you have the funds available to do that), you won't be paying any tax. Then if you hold the shares for at least a year before selling them, you will be paying lower taxes for long term gains (15%). This is much better than exercising the options and selling them right away because then you'd be paying short term gain taxes (same rate as your ordinary income taxes).

[gekkoplus]

Safari, I don't have that much cash to buy options. i will have to exercise the options and sell the stocks at the same time.

[safari]

Safari, I don't have that much cash to buy options. i will have to exercise the options and sell the stocks at the same time.

Do you think you will have the cash to exercise the options in 2 years?

Another way to exercise stock options is a stock swap. If you already own your company's stock, you might be able to swap your shares for the option shares, but you must have held your swapped shares for a certain period of time, so the exchange is not treated as sale in order to avoid taxes (check with an accountant on what that period is). As an example, let's say the current share price is $20 and you can buy 2,000 shares for $5, so you would need $10,000. Instead of paying cash, you can exchange 500 shares you already own (500 x $20 = $10,000) for 2,000 shares, so you'll end up with 1,500 more shares.