You can do that. But, if the company is still private, what you can't do is sell some of those shares that you just exercised in order to cover the tax bill.

You can do that. But, if the company is still private, what you can't do is sell some of those shares that you just exercised in order to cover the tax bill. That's fine if you exercise at $1.20, since that $100,000 exercise only increases you taxable income by $20k. But when you fully exercise at $20, your taxable income for the year increases by $1.9MM. Most people in that situation can't afford to cover the taxes, so they walk away.