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Is it better to do a cashless exercise or pay cash to exercise my options?

A cashless (or same-day-sale) exercise has the broker exercise and immediately sell enough shares to cover the strike price and taxes, handing you the net proceeds or remaining shares with no out-of-pocket cost. It's convenient and removes downside risk, but it forfeits the long-term capital gains benefit and, for ISOs, the qualifying-disposition treatment, since you sell right away. Paying cash to exercise and hold ties up money and accepts risk, but lets the future gain qualify for long-term rates and starts the holding clock – potentially big savings if the stock keeps rising. The right choice depends on your cash position, conviction in the stock, and how close you are to long-term thresholds. If you can't afford to hold illiquid or volatile shares, cashless is the safer route.

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