If your company is heading toward an IPO, first off, congratulations. That kind of event can be a game-changer, not just for your career but for your personal finances too. But here’s the deal most people don’t talk about enough: how you handle your stock options can make or break your outcome.

And I don’t say that from a distance. I’ve lived it.

Flashback: Midnight in Japan and the DivX IPO

Back when I was working with DivX and we were approaching our IPO, I was living in Japan. My active duty military husband was at sea, I was up at midnight, and the lockup period had just ended. The company Slack (well, back then it was more like email threads and hallway whispers) was buzzing with what everyone planned to do with their shares.

Some people were selling everything. Some were holding out for bigger gains. Me? I had a plan, and I stuck to it.

Was I nervous? Absolutely. But having that plan gave me peace of mind in the middle of all the noise. And that’s what I want for you.

Let’s walk through some key things I learned, not just from textbooks or clients, but from navigating this experience myself.

1. Know What Kind of Stock Options You Actually Have

Before you can make smart moves, you need to know what you're working with. Most employees have one of two types of equity when it comes to stock options. Note you may also have some RSUs and ESPPs inthe mix as well. But as far as stock options go, they fall into one of these two categories.

Incentive Stock Options (ISOs)
- May qualify for favorable long-term capital gains treatment
- Can trigger the Alternative Minimum Tax (AMT) if exercised and held
Non-Qualified Stock Options (NSOs)
- Taxed as ordinary income when exercised
- Simpler, but often with higher upfront tax impact

If you're not sure what kind you have, your grant documents or HR team should have that info. This one detail drives everything else, including how taxes will hit and when you might want to exercise.

2. Understand Your Vesting and Expiration Schedule

This was something I had to keep close tabs on at DivX, because it's easy to get caught up in the IPO hype and forget the fine print.

Know what's vested, partially vested, or still unvested
Track your expiration dates (typically 10 years from grant or 90 days post-departure)

An IPO can lead to job changes, early exits, or new priorities, so this timeline really matters. You don’t want your options to expire just because you weren’t paying attention.

3. Should You Exercise Pre-IPO? Let’s Weigh the Tradeoffs

This is where things can get tricky and personal.

Some people choose to exercise before the IPO because they want to:

Start the capital gains clock early
Lock in a lower strike price
Potentially reduce future tax liability

But here’s what doesn't get said enough: the lowest-risk approach is often to wait....to exercise and sell in the same year once the stock price is known. Yes, you’ll likely pay short-term capital gains tax, but you avoid the risk of tying up cash in illiquid shares or guessing about future outcomes.

And don’t assume early exercise always saves you money. I recently ran projections for a client who was planning to exercise early. After factoring in AMT, it turned out they would pay $70,000 more in taxes than if he had simply waited to exercise and sell in the same year because of AMT.

So before you jump into any strategy, run the numbers with a tax pro. Your situation is going to look different than your cubicle mate’s, and what works for them may not work for you.

4. Don’t Overlook the Lockup Period

At DivX, the IPO date came and went, but for many of us, the lockup period was just the beginning of the waiting game. While some employees were counting down to the end of that initial six months, executives and higher ups had to sit tight even longer because of ongoing access to insider information.

Just because the lockup period ends doesn’t necessarily mean you’re in the clear. Depending on your role and what you know, you may still be restricted from trading. Golden handcuffs are real.

And this matters because:

The stock price might drop before you’re allowed to sell
You could owe taxes on exercised shares without access to cash
Your short-term liquidity needs to be solid

If you're exercising pre-IPO, think carefully about that window between exercising and actually being able to sell.

5. Build Your Exit Plan Before the Exit

This might be the most important part. The IPO is exciting, but the real question is, what’s your plan after the dust settles?

Think about:

When and how much to sell
How to minimize taxes on gains
Where to reinvest or save the proceeds
Using advanced investing and tax saving strategies to offset taxes
How to avoid overconcentration in one stock (aka, don't bet your future on a single company)

I had to learn a lot of this in real time. But you? You can plan for it now.

Final Thoughts: You Don’t Have to Wing It

I know how tempting it is to follow the herd, especially when everyone around you is talking about their big plans or their “can’t miss” strategy.

But this isn’t one-size-fits-all.

If I’ve learned anything since my DivX days, it’s that the best decisions aren’t made in the moment. They’re made with a clear head, good information, and a little support.

If you’re feeling overwhelmed or unsure, you don’t have to figure it all out alone. Let’s walk through your options, your timeline, and your goals, and put a strategy together that actually works for you.

Book an Equity Comp Consultation today and make a plan with a tax pro who understands the taxes in depth on these equity transactions and has been in your shoes as an employee making that exercise or sell decision.

What to Do With Your Stock Options When an IPO Is on the Horizon