A more thorough explanation:

An Incentive Stock Option (ISO) is a type of stock option that companies use to reward their top employees. It is designed to provide tax benefits to the employee by reducing their tax liability. If used correctly, an ISO can be taxed as capital gains instead of regular income, which can significantly reduce the amount of taxes owed.

For example, let's say that an employee is granted an ISO to purchase 1,000 shares of their company's stock at $10 per share. If the stock price increases to $20 per share, the employee can exercise their option and purchase the shares for $10 each. They can then sell the shares for $20 each, resulting in a profit of $10 per share. This profit is taxed as a capital gain, which is typically lower than the tax rate for regular income.

However, there are several requirements that must be met in order to receive the tax benefits of an ISO. These include:

• The employee must not sell the stock until at least two years after receiving the options
• The employee must hold the stock for at least one year after exercising the option
• The stock option must last for ten years
• The stock option must be non-transferable by the employee
• The employee must remain an employee from the date of receiving the options to three months before exercising the options

It is important to note that there is also a risk involved with ISOs. If the stock price drops below the price set in the option, the employee may lose money.