Executive Summary
What are underwater stock options?
Underwater stock options are options where the strike price is higher than the current value of the stock. If you exercised today, you'd pay more than the shares are worth—so you'd lose money. Underwater options have no value to exercise. Your company may offer repricing, an exchange for new options, or supplemental grants. Otherwise, you wait for the stock to recover or let them expire.
Your company's stock has dropped. Your options have a $50 strike price, but the stock now trades at $30. You're underwater—and it's frustrating. What can you do?
The bottom line: You can't fix underwater options yourself. Only your company can. They might reprice, exchange them for new options, or give you a supplemental grant. If they don't, you wait or walk away. Never exercise underwater options—you'd lose money. See our strike price guide for the basics.
What Underwater Means
Underwater = your strike price is higher than the stock's current value.
| Your Strike | Current Stock Price | Status |
|---|---|---|
| $10 | $50 | In the money (you'd profit) |
| $10 | $10 | At the money (break-even) |
| $10 | $5 | Underwater (you'd lose) |
If you exercised 1,000 options at $10 when the stock is $5, you'd pay $10,000 for shares worth $5,000. That's a $5,000 loss. Don't do it.
What You Can Do
1. Ask Your Company
Many companies have programs for underwater options. Ask HR or your equity administrator. Common options:
| Solution | What It Means |
|---|---|
| Repricing | Company lowers your strike to the current price |
| Option-for-option exchange | You trade underwater options for fewer new ones at the current price |
| Supplemental grant | Company gives you new options to offset the loss |
| Cash buyout | Company buys back your underwater options (rare) |
2. Wait
The stock might recover. If you have years until expiration, waiting can make sense. But there's no guarantee. Many employees waited through 2022 and saw their options stay underwater or expire.
3. Let Them Expire
If the stock doesn't recover before your options expire (often 90 days after leaving, or 10 years from grant), they're worthless. It's not ideal—but sometimes it's the outcome. You don't owe anything. You just don't get anything either.
Option-for-Option Exchange
This is common. You give up your underwater options. In return, you get fewer new options at the current (lower) strike price.
Example: You have 10,000 options at $50 strike. Stock is now $20. Company offers a 1:2 exchange. You give up 10,000, get 5,000 new options at $20 strike. Same "value" (5,000 × $20 = 100,000 vs. 10,000 × $20 = 200,000... actually the exchange ratio varies). The idea: you get options that have a chance to be valuable again.
Repricing
Repricing means the company changes your strike price to the current fair market value. Your option count stays the same. Your strike drops. Now you're at the money—and future upside is possible again.
Not all companies do this. It can require board approval and shareholder consent. But it's worth asking.
What Not to Do
- Don't exercise. You'd pay more than the shares are worth.
- Don't assume the company will fix it. They might not. Ask.
- Don't panic. If you have time, waiting is an option. Markets go up and down.
Frequently Asked Questions
Will I owe tax if my options expire underwater?
No. Letting underwater options expire creates no tax. You never exercised, so there's no income. You just don't get the benefit.
Can I negotiate a repricing?
Usually not as an individual. Repricing is typically a company-wide program. But you can ask if one is planned. Executives sometimes have more leverage.
What if I'm leaving and my options are underwater?
You typically let them expire. Exercising would cost you money for shares worth less. Some companies offer a cash buyout for departing employees—ask. But often, you walk away with nothing from those options.
Disclaimer: This guide is for educational purposes. It does not constitute tax or financial advice.
Last Updated: March 2026 | Research Team: VestingStrategy