incentive stock option means: A tax-qualified option The optionee is entitled to favorable tax treatment This option does not attract regular tax from the date it is granted or the date that it is exercised. A non-qualified option will become taxable. The option’s profit is considered a long-term capital gain, rather than an ordinary income, if two holding periods are satisfied. These must be met at the date of grant and the date of sale. Failure to meet the holding period requirements will result in a “disqualifying disposition”. (in Stock Market Dictionary)