Stock Options
Definition
A contract that gives you the right to buy shares in a company at a fixed price (the strike price) within a certain time frame. Stock options are not shares themselves — they are the right to purchase shares later.
Real-World Example
You receive an offer granting 10,000 stock options with a strike price of $1.00. If the company later reaches a $10 share price, you can exercise your options to buy shares at $1 each, making $9 per share in paper profit.
Common Mistake
Treating stock options as if you already own shares. You own nothing until you exercise (buy). Options can expire worthless if the company share price never exceeds your strike price or if you leave before vesting.
Why It Matters
Stock options are the most common form of startup equity compensation. Understanding them is the foundation for making informed decisions about your total compensation.
Related Terms
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