The 90-Day Post-Termination Exercise Period
Leave your job and the clock starts. Miss the deadline and your vested options expire worthless.
- Standard window
- 90 days after last day of employment
- ISO tax rule
- IRC Section 422(a)(2): 3 months to keep ISO status
- Disability exception
- 1 year instead of 90 days
- Extended PTEP
- Some companies offer 1-7 years
- ISO conversion
- Exercise after 90 days converts ISO to NSO
- Clock starts
- Last day of active W-2 employment
What happens when you leave
When your employment ends, whether you quit, get laid off, or are terminated, all unvested equity is immediately forfeited. Your vested options remain exercisable, but only for a limited window defined in your equity plan. The overwhelming majority of private company plans set this window at 90 days. After the window closes, your vested but unexercised options expire worthless, even if they are worth hundreds of thousands of dollars on paper. The company reclaims those shares into its option pool.
Why 90 days specifically
The 90-day standard has two sources. First, it is the contractual default in most venture-backed equity plans. Second, IRC Section 422(a)(2) requires that an ISO be exercised no later than three months after employment ends to preserve ISO tax treatment. If your plan matches the tax deadline, you face a single hard cutoff for both exercisability and tax classification. Companies are not required to limit the window to 90 days. The tax code only says that exercising after 90 days means losing ISO status, not that the option itself must expire.
Extended PTEPs and the ISO-to-NSO conversion
Many late-stage companies now offer extended PTEPs ranging from one to seven years, recognizing that 90 days is often not enough time to secure financing. However, extending the plan does not extend the tax rule. If you exercise on day 91 or later, your ISOs are automatically reclassified as NSOs under IRC Section 422(a)(2). The entire spread at exercise becomes ordinary W-2 income, subject to federal income tax (up to 37%), state income tax (up to 13.3% in California), and payroll taxes. For 10,000 options with a $12 spread, this conversion can mean $60,000+ in immediate withholding obligations instead of a deferred AMT adjustment.
The blackout conflict
If your 90-day deadline falls within a company-imposed blackout period (common around earnings releases), you are barred from executing a cashless exercise. Without a pre-existing 10b5-1 trading plan, your only options are to source the full exercise cost in cash, secure non-recourse financing, or let the options expire. This interaction between blackout windows and PTEPs is one of the most dangerous timing traps in private equity compensation.
The modification trap
If a company offers to extend your PTEP and leaves the offer open for 30 days or more, Treasury regulations can treat this as a 'modification' of the option under IRC Section 424(h). A modification is treated as the granting of a new option, which can reset holding periods, change ISO qualification dates, and trigger unintended tax consequences, even if the employee never formally accepts the extension. Sophisticated companies structure extensions with short response windows or individualized amendments to avoid this trap.
Common mistakes
Assuming an extended PTEP preserves ISO tax treatment indefinitely. The tax statute does not change just because the company extended your exercise window. Failing to read the fine print on when the 90-day clock starts: it begins on your last day of active W-2 employment, not the end of your severance period or notice period. Ignoring California's sourcing rules: employees who moved out of California before exercising may still owe California income tax on a portion of the spread, allocated by workdays during the grant-to-exercise period. Not negotiating for an extended PTEP at the offer stage, when leverage is highest.
Common questions
Can I negotiate a longer exercise window?
Yes. The PTEP is one of the most valuable and negotiable terms in an equity package. Senior hires regularly negotiate for extended PTEPs of 1-3 years or longer. The trade-off is clear: you get more time, but any exercise after 90 days converts your ISOs to NSOs. Most people accept the NSO conversion as a fair trade for not being forced into a deadline under financial pressure.
What if I can't afford to exercise in 90 days?
This is the exact scenario non-recourse financing and exercise financing providers exist to solve. Lenders can front the exercise cost (and sometimes the tax bill) in exchange for a claim on a portion of your future upside. StrikeRates lets you compare these financing terms side by side so you don't have to take the first offer you find under time pressure.
Do RSUs have a PTEP?
No. RSUs are not options. There is no exercise decision. If you leave before your RSUs vest, they are simply forfeited. If they have already vested (and settled), you own the shares outright. Double-trigger RSUs at private companies require both vesting and a liquidity event before settlement.
What happens if I'm terminated for cause?
Many equity plans include provisions that allow the company to immediately cancel all options, including vested ones, upon termination for cause. The definition of 'cause' varies by plan and can be aggressively broad. Review your equity agreement carefully.
Sources
Use the scenario modeler to see how The 90-Day Post-Termination Exercise Period mechanics play out with your specific grant. The full app goes deeper: per-grant modeling, fund signals, and competing lender terms matched to your situation.