Ways to exercise employee stock options
By Laura Bruce • Bankrate.com

Most companies give employees several choices when it comes to exercising stock options. Talk with the person in charge of the process, and make sure you have a good understanding of what's involved. Once you make a decision to exercise your vested stock options, you'll also need to consider the tax scenario that may result.

Employee stock options Here are a few ways that you can exercise employee stock options:

Exercising stock options 1. Cashless method 2. Buy the shares 3. Certificate

Cashless method-- This method requires no cash outlay on your part, but it does require a brokerage account. Many companies that grant stock options open a brokerage account for this specific purpose. But if your company doesn't provide this service, it's easy to open an account at companies such as Fidelity, E*Trade, Charles Schwab and the like.

Your company will have the shares transferred to your account. You then sell the shares and pay the company the exercise price from the proceeds of the sale. Presumably, the current share price of the stock is above the exercise price so you don't need to sell all of the shares that are exercised. You can sell the net amount needed to cover the exercise price and, depending on your propensity to let money burn a hole in your pocket, it may be a good idea to put enough aside to cover taxes. If they're nonqualified stock options, your company will probably deduct the taxes. The brokerage will also deduct fees for its services.

Buy the shares -- Write a check for as many vested shares as you wish to purchase. You don't have to buy all vested shares at once. The company will have the shares transferred to your account.

Certificate -- If you don't have a brokerage account, and you don't want to open one, you can buy your shares and have a stock certificate issued to you. This is the type of document that should be kept in a safe-deposit box. But if the certificate is lost, another can be issued.

Up next: A look at tax scenarios that may result when you exercise or sell employee stock options.