Post-Termination Exercise Window

The Post-Termination Exercise Window (PTEW) is the period after termination during which an employee can exercise vested stock options before they expire. It is set by the option plan and grant agreement, with 90 days as the standard default (driven by ISO tax law requiring exercise within 90 days of termination), with extended PTEWs of 5, 7, or 10 years increasingly offered as a recruiting differentiator. It is one of the most consequential terms in an option grant because it determines whether vested equity actually delivers economic value to the employee or evaporates into forfeiture.

The PTEW mechanic:

• At termination: the employee's PTEW clock starts running. Vested options are exercisable for the duration of the PTEW; unvested options are forfeited immediately.
• During the window: the employee can exercise some or all vested options, paying the strike price and triggering normal exercise tax consequences (no regular income tax for ISOs within 90 days of termination; potential AMT; ordinary income for NSOs).
• At end of window: any unexercised vested options expire and are forfeited. The employee loses the right to convert them to stock regardless of company future performance.

The 90-day default and why it exists: ISO tax treatment under IRC Section 422 requires that ISOs be exercised within 90 days of termination of employment to maintain ISO status. Options exercised after 90 days are automatically reclassified as NSOs, losing the favorable ISO tax treatment. Companies historically set the PTEW at 90 days to align with this constraint. The extended PTEW movement: starting around 2015, employee-friendly companies (Pinterest, Quora, Asana, Coinbase, and others) extended PTEWs to multi-year periods (typically 5, 7, or 10 years) to give employees flexibility on exercise timing. The tradeoff: options exercised after 90 days lose ISO status (become NSOs), but the employee retains the right to exercise at all. Many employees accept the NSO conversion as the price of being able to exercise on their own timeline.

Why the 90-day window is a problem: employees who leave a company with substantial vested options often cannot fund the exercise cost during a 90-day window. The strike price plus any AMT or ordinary income tax can easily exceed available cash for a tenured employee with significant grants. The employee is forced to choose between liquidating personal assets to fund exercise (cash-binding) or letting vested options expire (forfeiting equity). Either outcome is bad. The extended-PTEW advantage: employees can delay exercise until a liquidity event is in sight (tender offer, secondary, acquisition, IPO), avoiding the cash-binding decision and letting them exercise from a position of information. The tradeoff is ISO disqualification, which many employees consider acceptable.

What founders get wrong: Defaulting to the 90-day PTEW because it's the standard without thinking about the employee impact. The 90-day window forces employees to either fund expensive exercises on uncertain companies or forfeit vested equity. Both outcomes damage the company's reputation as an employer and reduce the actual economic value of the equity package. The right discipline: consider extended PTEWs (5+ years) for tenured employees as a recruiting differentiator and retention tool, and communicate the policy clearly in offer letters and at termination.

Related: Stock Option · Option Exercise · Incentive Stock Option · Non-Qualified Stock Option · Vesting

FAQ

What is the post-termination exercise window (PTEW)?
The period of time after an employee terminates from the company during which they retain the right to exercise their vested stock options before those options expire. Set by the option plan and grant agreement, with 90 days being the standard default. Extended PTEWs (5, 7, or 10 years) are increasingly common at employee-friendly companies.

Why is the standard PTEW 90 days?
Because ISO tax treatment under IRC Section 422 requires that ISOs be exercised within 90 days of termination to maintain ISO status. Options exercised after 90 days are automatically reclassified as NSOs. Companies set the PTEW at 90 days historically to align with this constraint.

What is an extended PTEW?
A PTEW longer than the 90-day default, typically 5, 7, or 10 years, offered by employee-friendly companies to give departing employees flexibility on exercise timing. The tradeoff is ISO disqualification (options exercised after 90 days become NSOs), which many employees consider acceptable in exchange for the ability to delay exercise until a liquidity event is closer.