Strike price
Exercise price · Grant priceA strike price is the fixed per-share price at which a stock option can be exercised, set on the day the option is granted. It is what the holder pays for each share, whatever the shares are worth on the day of the exercise.
What is a strike price?
A stock option grants the right to buy a set number of shares at a set price. That price is the strike. It is written into the grant and does not move: the company's value can double or halve over the vesting schedule, and the strike stays where the grant put it.
At a US company the strike is set from the fair market value on the grant date. For an ISO the tax code requires a strike at or above that value, and at a private company the value comes from a 409A valuation.
The strike is not the value of the option. The value is the gap between the strike and the current share price, the spread. An option whose strike sits above the current price is underwater, and exercising it would cost more than the shares are worth.
How a strike price works, with numbers
A grant of 1,000 options carries a $2.00 strike. Once vested, exercising all of them costs $2,000, whether the company is worth $5.00 a share that day or $50.00.
At a $5.00 valuation, the $2,000 buys shares worth $5,000, and the $3,000 difference is the spread. At a $1.50 valuation the same exercise would cost $2,000 for shares worth $1,500.
- Strike, per share
- $2.00
- Vested options
- × 1,000
- Cost to exercise
- $2,000
Why a strike price matters
The strike sets the cash an exercise takes, and that cash is owed on the exercise date, at a private company for shares that may not be sellable for years. A grant's strike, times the vested shares, is the cost of turning the grant into shares.
It is also one leg of the tax figure. The spread, and so the ordinary income on an NSO or the AMT adjustment on an ISO, is the FMV at exercise minus the strike. A lower strike means a larger spread on the same shares.
Because the strike follows the valuation on the grant date, two grants at one company can carry different strikes. Refresh grants made after a valuation rises cost more per share to exercise than the original grant.
Strike price in Taiga Finance
Taiga Finance shows a grant's strike on the grant record as “Strike price”, per share, and prices what exercising costs from it: “Exercisable today” shows the vested, unexercised shares with the “strike to exercise” them in dollars underneath.
When an exercise is logged, the “Price paid / sh” field is prefilled from the grant strike, with the hint “Grant strike” under it, and the “Cost” readout is that price times the shares. A price other than the strike can be recorded, and the exercise history keeps what was actually paid.
Equity compensation →Key takeaways: Strike price
- The strike price is the fixed per-share price paid to exercise an option, set on the grant date.
- Strike times shares is the cash cost of an exercise.
- FMV minus strike is the spread, the figure that gets taxed.
- At a private company, the strike comes from the 409A valuation in force on the grant date.
Questions about Strike price
What is a strike price?
The per-share price fixed in an option grant, at which the holder can buy the shares once they vest. It stays the same for the life of the grant, however the company's value moves.
What does it cost to exercise at my strike?
The strike times the number of shares exercised. On 1,000 options with a $2.00 strike, exercising all of them costs $2,000 in cash, before any tax on the spread.
What is the difference between the strike price and FMV?
The strike is what the holder pays per share, fixed at grant. FMV is what a share is worth today, from the market or the latest 409A. The gap between them is the spread; when FMV is below the strike, the option is underwater.
Does Taiga Finance show what my options cost to exercise?
Yes. A grant's drawer shows the exercisable shares with the strike to exercise them in dollars, and the log-exercise form shows the cost of a given number of shares before it saves.