You need the money to meet short-term financial needs. . Obviously, if you are having trouble making ends meet, you can put the cash to good use.

You want to pay off high-interest debt. . High-interest debt can drain your bank account and defeat any long-term financial plan. Paying off high-interest debt is one of the best investments you can make. You can then invest the money formerly used to pay the debt holder.

You believe the company has no future. . Exercising your options and immediately selling the stock makes sense if you believe the company is in trouble or headed that way. You might also consider looking for a new job.

You plan to leave the company soon. . Many employee stock option plans require you to dispose of your options when you quit or retire. You may have up to a year if you have to quit because of a disability. Check your plan for its particular details. If you know you are leaving, it may make sense to cash out now, rather than wait until the last minute.

You own a lot of the company's stock already. . It is not a good idea to have too much of your portfolio in one stock, as I discuss in Lesson 3, "An Investing Primer." You can invest the cash in other stocks or mutual funds that will help diversify your portfolio.

There are tax consequences. . I will discuss specific tax issues in Lesson 9, where you will see there are tax circumstances where it makes more sense to cash out than choose other possibilities.

You want to do something nice for someone you care about. . There are many good reasons to invest the proceeds from the stock sale in one or all of the preceding reasons. However, sometimes there are considerations that are more important. If you are fortunate enough to work for a company that regularly grants stock options, you may want to use one occasionally just for some fun or to do something nice for a good friend or significant other.

You will spend the money on immediate gratification. . If you are not a disciplined saver or investor, putting the money in your bank account is an invitation to spend it. Be honest with yourself. If you find it hard to save or invest, it may make more sense to do nothing and let the options appreciate (it is hoped).

You may be leaving money on the table. . Over time, many stocks increase in price. This increase translates into stock and options that are worth a lot of money. There are thousands of rank-and-file employees who are millionaires thanks to stock options. You can exercise your options and hold the stock or simply do nothing and let the options increase in value (just don't let them expire). Either way you will participate in the company's growth.

You may avoid tax consequences. . Every person has a unique set of financial circumstances. Sometimes it makes sense for one person to immediately sell the stock, while another person may be better off holding onto the stock or options. See Lesson 9 for more information on taxes.

You want to add the stock to your portfolio. . Buying stock at a discount through stock options is a great way to build a strong financial future. Discounted stock has a profit at the outset and that makes your return even better. You choose this course of action because you believe the company will continue to grow. A bad investment bought at a discount is most likely still a bad investment.

You own incentive stock options. . ISOs create no tax liability until you sell the stock, assuming you meet all the requirements. When you do sell, the profit is a long-term capital gain, which is often lower than ordinary income tax rates.

You own nonstatutory stock options. . You must pay ordinary income tax on the spread between the grant price and the fair market price of the stock on the day you exercise your options. Once that burden is behind you, there are no more tax liabilities until you sell the stock. If you hold the stock for more than one year, it qualifies for long-term capital gain tax. If you believe the stock is going to continue to grow, it may make sense to pay ordinary income tax on the spread when it is small rather than waiting years, then facing a large ordinary tax liability when you exercise in the future.

You want to use the stock as a gift. . Many employee stock option agreements limit or prohibit transferring the option under most circumstances. ISO holders can't transfer their options under any circumstances, according to the tax code. Even if your option agreement does permit transferring (giving) your options, there are serious tax and estate planning consequences. One way to avoid these problems is to exercise your options and give the stock away. There are still some tax and estate considerations, but they are less severe than transferring options.

You don't have the cash. . You will need the money to pay for the stock when you exercise your options. Some employers may provide financing for stock purchases or make other arrangements to help you. If not, you will need to come up with the cash. I talk about ways to pay for the stock in Lesson 8, "Exercising Your Options."

You already own a lot of the stock. . You shouldn't own too much of one stock in your portfolio for the reasons I discussed eariler.

You believe the company is declining. . Obviously, if you believe the company's stock is going to drop, you don't want to own it.

It costs you nothing. . There are no holding costs for options. If you choose to do nothing for a while, you are not risking any money. Your only loss will be if the stock goes up and then back down before you act.

You don't want to own the stock, but want to participate in its growth. . You may not want to own the stock for a variety of reasons we have already covered. However, you would like to profit from the company's anticipated growth. Holding NSO options lets you share in the growth with no risk and no outlay of cash. At the appropriate time in the future, you can exercise your options and immediately sell the stock. Except for the tax consequences, this strategy is very smart.

You want to shift taxes. . It is possible to time your exercise and sale of the stock to minimize your tax liability. For example, most companies allow employees to exercise options for some period after retirement, often up to a year. An individual with a high salary might wait until the tax year after retirement to exercise the options and sell the stock. This would shift the income out of the tax year she was drawing a high salary and into a tax year with a much lower income after retirement.

You have little confidence in the company. . If you believe the company is on shaky ground, it may make sense to take a profit now rather than risk the stock dropping and making your options worthless.

There may be tax consequences. . If you plan to stay with the company, you may want to exercise your nonstatutory options as soon as possible. If you hold the options and the stock continues to appreciate, you face some stiff income tax consequences if your salary has pushed you into the upper tax brackets. It might be better to exercise quickly when the spread between the exercise price and fair market price is not large. If you want to hold the stock, you can do so or take the proceeds from a sale and invest them elsewhere.