Cashless exercise

A transaction that allows an employee to exercise share options without having to pay cash upfront to cover the exercise price. Also known as a same-day sale, a cashless exercise must be pre-organized with a brokerage firm, through a short-term loan that it provides. The employee borrows enough money from a broker to buy underlying stocks and then proceeds to resell enough shares immediately to pay back the loan, plus taxes and commissions. Cashless exercises are common among publicly traded corporations, and they can even receive favorable tax treatment in certain circumstances.

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