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There are a couple reason you might exercise you options.

First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains.

http://www.startupcompanylawyer.com/2008/03/05/whats-the-dif...

2. Your options are going to expire and you need to convert them to shares.

3. You are leaving and want to hold on to your shares. Typically you need to convert them within 3 months.



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