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    Strike Price

    Also called: Exercise price, Option price

    TL;DR

    The fixed price at which an option holder can purchase a share, set at fair market value on the grant date and locked in for the option's life.

    The strike price is what the option holder pays per share to exercise their option. It's set at the fair market value of common stock on the grant date (per the most recent 409A valuation). When the company's value rises, the option becomes 'in the money', the spread between current FMV and strike is the option's intrinsic value.

    For early employees, low strike prices can mean significant value at exit. For late-stage employees joining at higher 409A valuations, strike prices are higher and the leverage from any further share-price appreciation is smaller.

    Worked example

    A January 2024 grant has $1.10 strike (per the December 2023 409A). Six months later the next 409A returns $4.20, new grants issued in July use $4.20 strike. The earlier-grant employees gained $3.10/share of intrinsic value relative to new hires.

    Common pitfalls

    • •Setting the strike below FMV and triggering Section 409A penalties.
    • •Failing to refresh the 409A before granting options at a stale strike.
    • •Letting employees exercise large grants without understanding the cash and tax implications.

    When this shows up in a pitch deck

    Strike price mechanics are hiring and diligence content; not deck content.

    Related terms

    ISO

    A US tax-advantaged stock option for W-2 employees, eligible for long-term capital-gains treatment if holding-period requirements are met.

    NSO

    Non-Qualified Stock Options, a more flexible US option type than ISOs, available to contractors and advisors but without the same tax-advantaged treatment.

    RSU

    Restricted Stock Units, equity compensation that vests into shares without requiring exercise, common at late-stage and public companies.

    409A Valuation

    An IRS-required independent valuation of a private company's common stock, used to set the strike price for new option grants.

    ESOP

    Employee Stock Option Plan, the legal structure that lets a company grant options to employees at a defined strike price, governed by board approval and 409A.

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