Updated October 9, 2026. A cashless exercise means you cover the strike price, and often the tax withholding, with the shares themselves instead of writing a check. The broker sells enough shares at exercise to pay the cost and delivers the rest, or withholds shares in a net exercise. Both are still used in 2026. The plan document decides which one the company allows.
For nonqualified options, the spread on exercise is ordinary income and is usually withheld like wages. Selling immediately in a same-day sale does not erase that income. It only settles the cash.
For incentive stock options, a cashless sale that disposes of the shares in the same year as exercise is a disqualifying disposition. The spread is ordinary income. You lose the ISO holding-period treatment. A pure net exercise can also spoil ISO treatment. Read the plan and ask the stock administrator before you click the broker’s cashless button.
The old version of this page tied cashless exercise to margin calls. That is the wrong setting. This is an employee-plan transaction, not a brokerage margin cure.