Stock Options
The right to purchase company stock at a predetermined price (the strike price) at some future time. Common at startups. Options have value when the stock price rises above the strike price, but are worth nothing if the company doesn't grow or exit.
Stock options give employees the right, but not the obligation, to purchase company shares at a specific price (the 'strike price' or 'exercise price') after vesting. The theoretical value is the difference between the strike price and the market price at the time of exercise. **Two main types:** **ISOs (Incentive Stock Options)**: Eligible for favorable tax treatment if held correctly. Can only be granted to employees. Subject to AMT in some scenarios. **NSOs (Non-Qualified Stock Options)**: More common. Taxed as ordinary income at exercise (the spread between strike price and current value). Can be granted to employees, consultants, and board members. **The lifecycle:** 1. **Grant**: You're given options with a strike price equal to current fair market value (409A valuation) 2. **Vest**: Options vest over time (typically 4-year schedule with 1-year cliff) 3. **Exercise**: You pay the strike price to own the shares 4. **Exit or liquidity event**: Shares become saleable (IPO, acquisition) **The key risk:** Options are worth nothing if the company never achieves a valuation above your strike price. Even if the company does well, liquidation preferences of investors can reduce what employees receive. **Post-termination exercise window:** When you leave a company, you typically have 90 days to exercise vested options or lose them. Some companies have extended this to 5 or 10 years, a significant employee-friendly improvement.
Why it matters
Early-stage startup options represent the most extreme version of equity risk-reward. Understanding the strike price, the current 409A valuation, and the company's funding history gives you a realistic sense of potential value vs. the lottery narrative most founders tell.
Candidate tip
Ask about the post-termination exercise window before joining a startup with options. A 90-day window forces you to buy shares or lose them when you leave, which can be very expensive; a 5-10 year window is far more employee-friendly.
Related terms
Equity (Job Offer)
Offers & NegotiationOwnership stake in the company provided as part of compensation, typically as stock options or RSUs. Equity can be worth far more than base salary at successful companies, but it carries risk and illiquidity, particularly at private companies.
RSU (Restricted Stock Unit)
Offers & NegotiationA type of equity compensation that grants you a set number of company shares that vest over time. At vesting, the shares become yours to hold or sell. Common at public tech companies. Taxed as ordinary income at vest.
Vesting Schedule
Offers & NegotiationThe timeline over which an employee earns their equity grant. The most common structure is 4 years with a 1-year cliff, meaning no equity is earned in year 1, then 25% vests at 12 months, with monthly or quarterly vesting for years 2-4.
Total Compensation
Offers & NegotiationThe full value of everything an employer provides: base salary, bonus, equity, benefits, retirement contributions, and perks. Comparing total compensation across offers is more accurate than comparing base salaries alone.