Strike Price

A strike price is the price at which a stock option may be exercised. A stock option gives the holder of the option the right, but not the obligation, to purchase a specified number of shares of the corporation that issued the option upon the exercise of the option. There are two types of options – call options and put options. Call options give the holder the option to buy the stock, while put options give the holder the right to sell the stock. In the context of startups, and, in particular, incentives granted to key employees at those startups, the relevant type is a call option, since the holder is typically a key employee who is granted the right to buy the corporation’s stock at a later date for a reduced price if certain criteria are met, such as the employee working at the corporation for a minimum number of years. The strike price is sometimes referred to as the exercise price, purchase price, or grant price. It’s a fixed price, and the fixing of the price, in the context of a key employee being hired on by a corporation and being offered stock options, is often equal to the fair market value of the corporation’s stock at the time of the granting of the stock option.