Can you exercise options without cash?
Normally, you'd need cash to afford your option exercise. But that can be expensive. With a cashless exercise, you cover your expenses with your sale proceeds and avoid the problem. A cashless exercise allows you to exercise stock options and sell the resulting shares immediately.
Since you don't have enough buying power to exercise the option, you close the trade by selling the contract at a higher premium – as long as the call contract is worth more than $10 at any point in your trade, you'd realize a profit if you closed the contract.
The option may be exercised only if funds become available within the 60-day period. In the event that sufficient funding is not available within the 60 day period, the Government waives the right to exercise the option, thereby rendering any additional requirements subject to full and open competition requirements.
If for any reason we can't sell your contract, and you don't have the necessary buying power or shares to exercise it, we may attempt to submit a DNE request to the Options Clearing Corporation (OCC), and your contract should expire worthless.
You have to use your own money: When exercising options early, you can't sell some of your stock to pay for your shares. There's no guarantee that your shares will increase in value: By waiting for the usual one-year vesting cliff, you may get a better idea of whether you should purchase your options or not.
You'll be taxed at the highest rate.
Even though you don't need cash to do a cashless exercise, it's still not free. You're just deferring the payment until you actually make money. The money you make will be taxed at ordinary income rates. These can be as high as 52.65% (for federal + state taxes).
Non-recourse financing
If you don't have enough money to self-fund the exercise of your stock options and loans are too risky, your next best option could be non-recourse financing. Non-recourse financing is a cash advance that covers the cost of exercising plus any tax burden that exercising incurs.
It's often wrong to exercise an option rather than sell it unless you want to own a position in the underlying stock. Be sure to close it through an offsetting sale if the contract is in the money heading into the expiration and you don't want it exercised.
Options strategies that involve selling options contracts may lead to significant losses, and the use of margin may amplify those losses. Some of these strategies may expose you to losses that exceed your initial investment amount. Therefore, you will owe money to your broker in addition to the investment loss.
The holder of a long options position may choose to exercise the options contracts even if they finish out-of-the-money. In some cases, exercising out-of-the-money options may be economically beneficial due to stock price changes in the extended hours session.
What happens if you don't sell your call option before expiration?
When options expire, any in-the-money options are typically exercised automatically, meaning the holder will buy (for calls) or sell (for puts) the underlying asset at the strike price. Out-of-the-money options expire worthless, resulting in the holder losing the premium paid.
In the US, the exercise price is typically set at the fair market value of the underlying stock as of the date the option is granted, in order to comply with certain requirements under US tax law.

An option contract, in contrast to stock, has an end date. It will lose much of its value if you can't buy, sell, or exercise your option before its expiration date. An option contract ceases trading at its expiration and is either exercised or worthless.
Getting approved for Level 3 options trading involves demonstrating to brokers that you have the requisite knowledge, experience, and financial resources to handle more complex strategies.
Deploying a poor man's covered call (PMCC) involves purchasing a deep in-the-money (ITM), back-month call option, while selling a shorter-term out-of-the-money (OTM) call option on the same stock.
If the option expires in-the-money it will be automatically exercised. 100 shares of the underlying will be purchased for every contract exercised. If you don't have the necessary buying power, Robinhood may attempt to place a Do Not Exercise (DNE) request on your behalf.
Non-recourse loans have traditionally been a go-to for startup employees looking to finance the exercise of their stock options without immediate out-of-pocket expenses. These loans are secured by the stock itself, limiting the lender's recourse to the stock as collateral in the event of a default.
To exercise an option, you simply advise your broker that you wish to exercise the option in your contract. If the holder of a put option exercises the contract, they will sell the underlying security at a stated price within a specific timeframe.
If you keep the stock for at least a year after exercising and two years after the grant date, your profit is taxed at the lower long-term capital gains rate. This means you'll pay less in taxes on the gains from selling the stock than from your normal income.
Cashless exercising is less risky than paying cash because you avoid investing your own money to pay exercise costs. It can be beneficial if you have less personal liquidity or if you want to avoid the out-of-pocket expense of exercising with cash.
Do I pay tax when I exercise my options?
Income tax is charged on the exercise of the non-tax-advantaged option on the difference between the market value of the shares at the date of exercise and the amount paid to acquire the shares under the option (ie the exercise price).
An out-of-the-money put option is when the market price is higher than the exercise price. Here, the contract holder would not exercise the option because they would not sell the stock for a price less than what is offered to the marketplace.
Selling an option vs exercising is a process requiring you to evaluate different market scenarios. Specifically, you will need to make different considerations, whether it is out-of-the-money (OTM) or in-the-money (ITM). If your option is Out-of-the-Money (OTM), the optimal choice is almost always to sell it.
Should I Exercise Call Options Before an Acquisition? You should wait until the stock price rises pending an acquisition. This allows you to exercise them at the relatively lower strike price and then sell the shares in the market at a premium.
There is generally no exercise or assignment activity on options that expire out-of-the-money.