But its an area where tax law has changed a bit so its useful to check with your accountant to see if you can write off gains on current stock against previously realized losses. That way you get to keep more of the money from selling the current stock. Exercises are still regular income (grrrrr!) but gains on like investments (stock for stock) are generally offsetable. Check with your accountant.
eg. spent 4 years there, fully vested, decide to leave for another opportunity. In most cases there is a very short (30 days is common, sometimes up to 90 days depending upon the options contract) window for you to exercise your options or you will lose them.
First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains.
http://www.startupcompanylawyer.com/2008/03/05/whats-the-dif...
2. Your options are going to expire and you need to convert them to shares.
3. You are leaving and want to hold on to your shares. Typically you need to convert them within 3 months.
You've likely heard this, but one thing you might want to look at is a hybrid transaction (I think they call this a "cashless transaction"); exercise and sell enough to cover taxes and to purchase anything you've got available to exercise (to hold for another year).
Several were bankrupted because the stock deflated. Oh, and IRS bills are not dischargable in bankruptcy, so those poor bastards had their pay attached.