How to Give Up Convertible Stock Options

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    • 1). Check the option "strike price," that is, the price at which you have the right to buy the stock. If the strike price is lower than the current price of the stock, you can purchase the stock from the issuing company at the strike price and then sell the stock on the market for an immediate profit. Or you can sell the stock options themselves to a willing buyer, through a broker.

    • 2). Contact the issuing company if the strike price is higher than the current value of the stock. If options were issued by your employer, start with the human resources department. Ask if the company is willing to purchase the options from you or to exchange them for new options at a more realistic strike price. If they are incentive stock options, the company may feel that a stock option with a strike price hopelessly above the current price of the stock is not much of an incentive, and may be willing to issue new options -- especially if enough workers demand it.

    • 3). Estimate the tax effect of converting your options to restricted stock, that is, stock that cannot be sold in the open market without company permission. If options are converted to restricted stock, you may generate a tax liability as soon as the restrictions lift (a process called "vesting"), since the IRS considers the value of any vested shares of restricted stock to be taxable compensation.

    • 4). Calculate the tax effect of an option-to-cash conversion. Stock options are generally not taxable until the employee exercises them. But if you take the cash, you may generate an immediate tax liability.

    • 5). Accept an offer from the issuer to exchange your devalued options for something else of value, if the tax consequences of conversion are acceptable.

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