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Early-Exercise Stock Option

A stock option that is immediately exercisable but which typically does not start vesting until between six months and a year after grant.

The underlying shares received at exercise are "restricted" and subject to a repurchase right by the company at the exercise price until they are vested. Early exercise starts the capital gains clock for a later resale. No gains are realized on the spread from the option exercise until vesting or until a Section 83(b) election is filed.

Early-exercise stock options are used by pre-IPO companies, where the early-exercise feature is sometimes called "reverse vesting." For details, see this website's section Pre-IPO: Early-Exercise Options.

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