An incentive stock option is a common form of an employee stock option that comes with a tax benefit. This benefit is generally reserved for high-level employees, and while they do come with more advantageous tax treatment, the owner of the stock option must hold onto it longer than similar options in order to get the most out of it. These options can come with a vesting schedule, which states that a certain amount of time must pass in order for the employee to exercise all of his or her options. There are several different ways in which options can be exercised such as utilizing a stock swap or exercising a cashless transaction.
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