Strike price
Also: strike price, exercise price, option price
The fixed price an option holder pays per share to exercise. Set at grant, typically equal to the FMV on the grant date to meet ISO rules and Section 409A safe harbor.
The strike is the price the employee pays to acquire each share under a stock option grant. For ISOs, the strike must be at least the FMV on the grant date, measured by a 409A valuation for private companies. The same rule applies to NSOs under Section 409A. Grants at a strike below FMV trigger immediate taxation plus a 20% federal penalty under 409A.
Example: a Series B company has a 409A FMV of $6. An option grant of 20,000 shares at a $6 strike requires $120,000 of cash to exercise in full. If the shares later trade at $30 in a secondary tender, the $480,000 appreciation is the employee’s gross gain before tax.
Common mistake: confusing the strike with the stock price. The strike is fixed at grant. The stock price moves. The spread between current FMV and strike is what determines the tax event at exercise. Check the grant notice, not the cap table, for the strike on file with the IRS.
The strike matters at grant, during negotiation of accepted offers, at exercise (when cash outlay equals strike times shares), and at sale (where strike plus ordinary income at exercise equals the basis).