Securities & instruments
What is Stock Option?
The right to buy a fixed number of shares at a fixed price (strike price) within a defined period, subject to vesting.
A stock option grants the right - not obligation - to purchase company stock at a pre-set strike price (the 409A fair market value at grant). Options vest over time (typically 4 years with a 1-year cliff). Once vested, the holder can exercise (pay the strike price and receive shares). Options come in two flavors with different tax treatment: ISOs (incentive stock options, employees only, tax-favored) and NSOs (non-qualified, anyone, more straightforward tax). Options expire - usually 90 days after employment ends, unless extended.