What is the exercise priority score?

What is the Exercise Priority Score?

The exercise priority score is a metric used by Grantd to help advisors and clients prioritize which stock options to exercise and when. This score evaluates multiple factors to identify optimal exercise opportunities based on the option's characteristics and current market conditions.

Why Exercise Priority Matters

With multiple option grants vesting at different times, each with different strike prices and expiration dates, determining which options to exercise first can be complex. The exercise priority score simplifies this decision by consolidating multiple variables into a single, actionable metric.

How the Score is Used

The exercise priority score helps answer critical questions:

Which options should I exercise first?
Which grants are approaching critical decision points?
Where are the best risk/reward opportunities?
Which options require immediate attention?

Alert Capabilities

Grantd allows you to set up alerts based on exercise priority score thresholds:

Exercise Priority Score Trigger

Set alerts when exercise priority scores reach specified levels
Example: Alert when score goes above 85%
Receive email notifications when thresholds are met
Helps ensure you don't miss optimal exercise windows

Factors That Influence Priority

While the exact calculation methodology considers multiple variables, exercise priority typically accounts for:

Time-Related Factors

Time remaining until expiration
Vesting status and timeline
Blackout period considerations

Value-Related Factors

Intrinsic value (current stock price vs. strike price)
Time value remaining
Leverage characteristics

Risk-Related Factors

Concentration impact
Tax implications
AMT considerations for ISOs

Market-Related Factors

Current stock price relative to historical performance
Volatility environment
Growth rate assumptions

Using the Score in Planning

High Priority Scores

Indicate options that warrant immediate attention or action:

Options approaching expiration
Significant intrinsic value at risk
Optimal exercise windows opening
Time value eroding rapidly

Medium Priority Scores

Suggest monitoring and planning:

Options to watch for future exercise
Grants to include in annual strategy
Positions requiring periodic review

Low Priority Scores

Typically indicate:

Options with significant time remaining
Out-of-the-money options with limited immediate value
Grants that don't require immediate decisions

Strategic Applications

Annual Planning Use exercise priority scores to:

Identify which grants to focus on in the current year
Plan multi-year exercise strategies
Allocate tax reserves appropriately
Coordinate with broader financial planning

Tax Planning Combine priority scores with tax projections to:

Time exercises in low-income years
Manage AMT exposure for ISOs
Optimize capital gains treatment
Balance ordinary income across years

Risk Management Use scores alongside concentration analysis to:

Prioritize exercises that reduce concentration
Balance portfolio diversification needs
Manage exposure to company-specific risk

Monitoring and Alerts

Set up automatic monitoring by:

Navigate to the client's Alerts tab
Select "+ Create Alert Rule"
Choose "Exercise Priority Score trigger"
Set your threshold (e.g., alert when score exceeds 85%)
Select "Create Alert"

You'll receive email notifications when any option crosses your specified threshold, ensuring timely action on high-priority opportunities.

Best Practices

Regular Review

Check exercise priority scores quarterly
Review immediately after significant stock price movements
Update after major grants vest or expire

Context Matters

Priority scores are tools, not absolute mandates
Consider personal financial circumstances
Factor in liquidity needs and tax situation
Account for company-specific knowledge

Coordinate with Tax Planning

High priority doesn't always mean "exercise now"
Balance priority with current-year tax situation
Consider multi-year tax optimization
Work with CPA on timing decisions