RSU vs. Stock Options: What’s the Difference and Which Is Better for You?
When you receive equity compensation, it often comes in one of two flavors: Restricted Stock Units (RSUs) or Stock Options. While both can build long-term wealth, they function very differently—and choosing how to value or negotiate them can impact your financial future.
In this article, we’ll break down the difference between RSUs and stock options, their tax treatment, and how to evaluate which is better for you.
What Are RSUs?
RSUs (Restricted Stock Units) are company shares granted to an employee as part of their compensation. You don’t pay anything upfront. Instead, the shares are delivered to you (usually after a vesting schedule), and you own them outright.
Key Features of RSUs:
- You don’t need to buy them.
- They are taxed as income when they vest.
- You get value even if the stock goes down (as long as it’s not $0).
What Are Stock Options?
Stock options give you the right to buy company stock at a set price—called the strike price—after you’ve met certain conditions (like a vesting period). If the stock price rises above your strike price, you can “exercise” your options and profit from the difference.
Key Features of Stock Options:
- You must pay to exercise (buy) the shares.
- You only profit if the stock price goes above the strike price.
- They can expire worthless if the stock never rises.
RSU vs. Stock Options: Key Differences
| Feature | RSUs | Stock Options |
|---|---|---|
| Upfront Cost | None | Yes – you must pay the strike price |
| Tax Timing | Taxed as income when vested | Taxed when exercised (and possibly sold) |
| Risk | Low – always worth something (unless worthless) | Higher – only worth something if stock rises |
| Upside Potential | More limited | Higher potential gains if stock soars |
| Common in | Later-stage startups, public companies | Early-stage startups |
What Happens If You Don’t Exercise Your Stock Options?
Employee stock options come with an expiration date, often 10 years from the grant date. If you don’t exercise them before they expire, you lose the right to buy the shares.
Also, if you leave the company, most plans give you 90 days to exercise your vested options. After that window, they expire too—even if they were in-the-money.
Always check your company’s plan documents for exact timelines.
Can You Just Sell the Difference in Premium?
No. You must exercise your options before selling.
Employee stock options are not the same as publicly traded options. You can’t just sell the difference between the market price and the strike price (called the “premium”).
Instead, you must:
- Exercise (buy the shares at the strike price)
- Sell those shares on the open market (if you choose)
Some companies offer a cashless exercise method, where the company handles the buy-sell instantly and deducts the cost from your proceeds—but you’re still technically exercising them first.
Tax Implications
RSUs:
- Taxed as ordinary income at the market price on the day they vest.
- You may also pay capital gains tax if you hold the shares and later sell them for more.
Stock Options:
- Two types: ISO (Incentive Stock Options) and NSO (Non-Qualified Stock Options).
- ISOs may have favorable tax treatment but come with AMT (Alternative Minimum Tax) risks.
- NSOs are taxed as income when exercised.
Which One Is Better?
It depends on your situation.
RSUs may be better if you want:
- Lower risk
- Guaranteed value upon vesting
- Simpler taxes
Stock Options may be better if you:
- Believe the company will grow significantly
- Want high upside potential
- Are okay with risk and complexity
How to Hedge RSUs or Stock Options Before They Vest
The Problem:
When a large portion of your compensation comes from equity grants, you’re at the mercy of the market. If your RSUs or stock options are set to vest in a few months, and the stock tanks before then, you could lose tens of thousands in value—without any way to act.
This is especially risky if:
- You can’t sell until the shares vest.
- Your salary and future liquidity are tied to the stock price.
- The stock has already run hot this quarter and may be nearing a top.
So what can you do when you can’t sell yet, but the chart looks stretched?
The Solution: Use Expected Move to Hedge Proactively
You don’t have to sit on your hands. Smart professionals hedge their unvested equity exposure using tools like:
- Expected move calculations (based on implied volatility)
- Quarterly price range forecasts
- Strategic put options or collars to lock in downside protection
- Covered calls (if you already hold some vested shares)
When the stock approaches the top end of its expected move range, it’s often a sign to:
- Protect downside
- Lock in value using option strategies
- Reduce correlation risk to your income
Let Gextron Do It For You
Instead of trying to model expected move ranges or track volatility manually, Gextron does it all for you:
✅ Tracks your company’s option premiums and expected move zones
✅ Sends alerts when top-of-range conditions are met
✅ Helps you hedge exposure without complex spreadsheets
✅ Built specifically for tech professionals and equity-heavy employees
Whether you’re waiting on RSUs to vest or holding unexercised options, Gextron gives you a hedging blueprint—so your financial future isn’t at the mercy of the next earnings miss or macro headline.
Final Thoughts
Both RSUs and stock options can be valuable tools to build wealth—but they require different strategies. Understand the vesting schedule, tax consequences, and financial risks before making decisions. If you’re unsure, consider speaking to a financial advisor or tax professional to guide your strategy.