Some online advice articles say you should hold your employee stock options as long as possible and not exercise them until they are near the expiration date, thus giving the stock the opportunity for additional price appreciation. I do not think this is always the right advice. Your circumstances, comfort level with risk, tax situation and a few other factors should also be considered.

Here are five factors to use to come up with a personalized answer as to the best time to exercise your employee stock options. Consider your current needs for cash compared to the potential of additional gains if you hold the options in hopes the stock price will climb higher. If you need cash now and your options have value, exercising now is a sure thing. A higher stock price in the future is not certain. There is a component to your employee stock options called time value.

If there are many years left until the expiration date, time value is the potential for additional future gains.

Along with time value comes the risk that the stock goes down, and the gains you would realize by exercising today disappear. With tax planning you project out your expected income and deductions over the upcoming years. Exercising all your options in one year could bump you into a higher tax bracket.

There may be tax reasons to exercise some options now and some later. For tax reasons, it may make sense to exercise a portion of your options every year rather than waiting until the expiration date to exercise them all.

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The volatility of your company stock, and market conditions as a whole need to be considered. If you are a sophisticated, high net worth household you may pursue more advanced strategies than someone with less sophistication.

Tax Topics - Topic Stock Options

I spoke with John Olagues, author of Getting Started in Employee Stock Options in regards to advanced employee stock option exercise strategies. John is a former Stock Options Market Maker from the Chicago Board Options Exchange and the Pacific Options Exchange in San Francisco.

He has applied his knowledge of hedging and trading strategies to employee stock options, and says you can reduce risk and increase potential returns by using advanced strategies, which involve selling calls and buying puts on the company stock.

John is adamant that when compared to an exercise and sell strategy, advanced option strategies are a more efficient way of reducing risk and capturing the time value remaining in your options.

Get The Most Out Of Employee Stock Options

John outlines his thoughts in 5 Golden Rules for Managing Employee Stock Options. Consider all the factors above to make a decisions that fits your needs. Search the site GO. Updated May 10, Get Daily Money Tips to Your Inbox Email Address Sign Up.

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