Your company is going public. What do you do with your options before the IPO?

What if the most expensive financial decision of your career is the one you make in the twelve months before your company goes public, not the day it does?

Most pre-IPO employees plan around the wrong date. They watch the listing day, draft a sell plan around the IPO price, and start running the diversification math the week the lock-up expires. By the time they get there, the decisions that mattered most have already been made or missed.

The twelve months before a liquidity event is where the real money moves and where the real mistakes happen. Strike prices that looked reasonable two years ago start to look generous against rising 409A marks. Vesting schedules sometimes accelerate. AMT exposure climbs quietly in the background. And the calendar runs out faster than people expect.

This is the playbook for that twelve-month window.

What lock-up periods actually constrain

The standard public company lock-up runs 180 days from the listing date. During that window, employees generally cannot sell shares acquired through their equity awards.

Two things people get wrong about it.

First, the lock-up does not constrain decisions you make before the IPO. You can still exercise options. You can pre-pay AMT through estimated payments. You can set up a 10b5-1 trading plan that begins the day the lock-up expires. You can make charitable transfers of stock to manage tax exposure. Almost every important decision lives outside the lock-up window, not inside it.

Second, the lock-up creates a structural cliff. When 180 days hit, thousands of employees become eligible to sell at the same moment. Many do, often without a plan, often into a price that has already started to move against them. We've talked before in Week 4 about why holding your company stock is not a strategy. The day after lock-up expiration is when that idea gets tested in the open.

The pattern that works: a written sell plan, finalized before the IPO, that takes the panic out of the day the lock-up lifts.

A 10b5-1 plan is the cleanest version of this. You set the rules in advance. Sell this many shares at this price, on these dates. Once it is in place, the plan executes whether you are paying attention or not. Most lock-up expirations also do not need to be a single sell event. Scaling out over thirty, sixty, or ninety days smooths the price impact and gives you time to absorb the tax math. The plan is what makes that possible.

Early exercise is a real decision, not a default

Exercising options before the IPO is not free, and it is not automatic.

The cash math is the first part. If you have 10,000 ISOs with a $2 strike price, exercising costs $20,000 in cash to the company. That is real money out of your bank account, and you cannot sell the resulting shares to recover it until lock-up expires.

The tax math is the bigger part. The bargain element, which is the difference between the fair market value at exercise and your strike price, becomes a preference item for the Alternative Minimum Tax in the year you exercise. With a $2 strike and a $20 fair market value, that is $180,000 of AMT preference income from a single exercise.

The strategic math is the part most people skip. If you exercise pre-IPO and the company does not actually go public on the schedule you expected, you are now sitting on illiquid stock you cannot sell, that triggered a tax bill, and that you cannot easily recoup if the company's value falls. We covered the underlying mechanics of ISOs versus NSOs in Week 3; the same option type behaves very differently depending on when you exercise it.

Pre-IPO exercise can be the right call. It is rarely the right default.

AMT is the landmine

The Alternative Minimum Tax is the single biggest tax trap in pre-IPO option exercises. The federal AMT runs in parallel with your regular tax calculation, and the ISO bargain element is one of the largest preference items it watches.

A few specifics worth knowing.

The AMT rate is 26% on AMT income up to approximately $244,500, and 28% on AMT income above that threshold. Those numbers are 2026 figures and should be verified against current IRS published amounts before you act on them. The AMT exemption phases out at higher incomes, which is exactly where most Bay Area tech employees with significant RSU vests already sit. We covered the broader baseline in Week 5; the AMT layer sits on top of that.

Two things make AMT especially painful in IPO years.

You owe the tax in the year you exercise, even if you never sell the shares. If your company does not go public on schedule, or if the price falls after listing, you can end up with an AMT bill that exceeds the after-tax value of the stock that triggered it.

The AMT credit recovers over time, but the timing is unpredictable. You can only use the credit in years where your regular tax exceeds your tentative minimum tax. For someone with steady high income and no further large ISO exercises, that recovery can take years.

Modeling AMT before exercising, not after, is the entire game.

The decisions that matter most

Five questions to answer in the twelve months before your company goes public.

Have I modeled the AMT exposure of every ISO exercise scenario, including the cash needed to pay the tax bill in April of the year after exercise?

Do I have a written sell plan for the period after lock-up expiration, including the percentage of post-lock-up holdings I plan to sell on day one and the cadence after that?

Have I quantified my single-stock concentration as of the lock-up expiration date, including unvested shares, vested-but-unexercised options, and shares I expect to acquire through ESPP or future RSU vests during the lock-up window? Week 8 walked through the diversification side of this; the numbers only work if you know what you are starting with.

Have I increased my federal and California estimated tax payments to absorb the AMT exposure and the eventual capital gains from the post-lock-up sale plan?

If the company does not go public on the timeline I expected, what changes about my exercise decision today?

If you cannot answer all five with specifics, you are not yet in control of the twelve-month window.

The bottom line

The IPO is not the moment that decides your outcome. The twelve months before are. The decisions about exercise timing, AMT modeling, and a post-lock-up sale plan compound into the difference between a clean liquidity event and a tax bill that lands the next April.

If you'd like to talk through your specific situation, I'm happy to take a look together.

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