Equity 101 Part 2: Stock option strike prices
Startup Codex

This three parts post features the basics of startup stock options from the employee's point of view.

It covers a number of topics: the different types of stock options, the stock option agreement, the vesting schedule, the employee departure, the strike price, the valuation, the dilution, and the tax treatment.

A very good starting point for any employee who might benefit from stock options when joining a startup.

Read Part 1 here

Read Part 3 here

Remember: stock options are the right to buy a set number of company shares at a fixed price, typically called a strike price, grant price, or exercise price. In this example, your stock option strike price is $1 per share.

To come up with that $1 price, Meetly (our example company) had to determine its fair market value (FMV). For private companies, FMV is essentially what the price would be if the stock were traded publicly on the open market. Your stock option strike price is usually equal to the FMV of the company’s stock on the day the option is granted.