Stock option valuation and Black-Scholes
Exercising converts an option into a share. That trade gives up time value — the part of the option's worth that comes from optionality.
Intrinsic vs time value
Intrinsic value is FMV minus strike. Time value reflects volatility, time to expiration and interest rates. Black-Scholes puts a number on the total.
What it tells you
For volatile private companies with years left on the grant, time value can be substantial. Exercising early buys tax efficiency at the cost of that insurance.
Use it as one input
Models assume tradeable, liquid shares. Your options are neither, so treat the output as a directional signal, not a price.
This article is educational and not tax, legal, or financial advice. Talk to a CPA or tax advisor about your specific situation.