For the below mentioned scenario, I want to know how much profit I will make if I sell all my options. I am new to the world of stocks, and any help will be greatly appreciated.

My company has granted me n1 amount of Incentive stock options.

Each share has an exercise price of $8.

The market value of each share is $28.

At present, 50% of my stocks have been vested.

I have some elementary understanding of the concepts of exercise price and market price. I would presume exercise price to be a value at which I can purchase the company's stock (i.e. USD 8 per share.) Similarly, market price is the money that I will get when I sell the aforementioned stocks (i.e. $28 per share.)

How much profit will I get if I exercise and subsequently sell all the incentive stock options that got vested for me?

Is it something as simple as (1/2) * n1 * $(28 - 8) = $10*n1?

Given that these are incentive stock options, will trading of these be different from regular stocks?

1 Answer 1


Yes, you have the right formula. There are a few things to be aware of: if this is a typical US stock option plan then the amount you calculated will be taxable as ordinary income. This means the company will put that amount on your W2 so you will get a tax bill at the end of the year that you should plan for. Read the plan document carefully to make sure about this.
There are some nuances here : if you exercise the options, but do not sell the stock, you will still pay ordinary income tax on the market value at the time of exercise, which is nasty if the stock goes down subsequently. But as I said, read the document carefully.

  • Not sure I understand, what's nasty in paying taxes on income if you later lose it on a stock market? Would it also be nasty to pay taxes if instead of keeping the shares you'd sell them and then gamble the proceeds away in Vegas?
    – littleadv
    Apr 25, 2023 at 15:57
  • 1
    For example he exercises the options but does not sell the stock. The value reported to the IRS is usd20. At a marginal tax rate of 40% that is a 8 dollar tax bill. Then the stock goes to zero. So the overall amount of benefit from this stock option is a loss of 8 dollars. I.e worse than zero.
    – dm63
    Apr 25, 2023 at 21:21
  • How's that different from selling the stock for usd20, putting it all on red and losing it?
    – littleadv
    Apr 25, 2023 at 21:34
  • 2
    Economically similar, but that requires a specific action. Merely keeping the stock produces the same effect which might be surprising to some.
    – dm63
    Apr 26, 2023 at 4:28
  • But the decision to invest in your company or put everything on red is irrelevant when it comes to taxes. Why are you saying that taxation of income becomes "nasty" as the result of the taxpayer's decision?
    – littleadv
    Apr 26, 2023 at 4:51

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