You normally buy a stock with cash. When you buy, you have exercised your option. Hopefully you can exercise the option to buy when the stock has risen in value above the option price. Of course, there is no risk to a stock option until you decide to purchase the stock. The exercise period sets the last possible date you can buy, the vesting period sets the initial date at which you can exercise part or all of your option.
Some firms require a one-year vesting period before any shares can be purchased.
Others phase it in, allowing portions to be exercised each year until full vesting is reached. If you accept stock options as part of your compensation, be sure to review your investment portfolio regularly. This will help you to reduce the risk involved with being overweighted in one investment, such as your company stock. It will also help you to take advantage of the wealth that you have created by showing you it's time to sell some stock and diversify your investments. Copyright 2001 Janet Bigham Bernstel.