What is it:
Option expiration is the date by which a vested Stock Option must be exercised or it's forfeited permanently. This is typically ten years from the grant date for active employees. However, this expiration can be shortened dramatically following a termination of employment, sometimes to 90 days from the date of termination.
Why does it matter:
Additional compensation that qualifies as ordinary income is added on top of your salary and bonus when determining which tax bracket applies. This means that a large equity vest can push you into a higher marginal rate. Understanding which components of your compensation qualify as ordinary income allows you to calculate the actual rate you're facing, thus reducing the risk of a surprise at tax time.
What do people most often get wrong:
People often assume the original ten-year expiration date still applies after departure. This is one of the more costly assumptions in a departure. The post-termination exercise window is governed by the plan document, not by the original grant terms, and it's dramatically shorter.