4 ms·

Thanks for the info. I'm still a bit confused though. Correct me if I'm wrong, but the strike price is not necessarily the value of the stock, no? Plus I would

Thanks for the info. I'm still a bit confused though. Correct me if I'm wrong, but the strike price is not necessarily the value of the stock, no? Plus I would need to subtract it from the value of the stock in order to exercise the option. So let's say after 4 years I want to exercise 100,000 stocks at 1$ strike price each. Let's say the the current valuation is 5$ per stock. My return is 100,00$ * 5, minus the cost of the strike price (100,000$). In total that's 400,000$ So I'm not sure why the strike price is used to define the value, since I would need to pay that amount anyway. I would make a profit for any dollar for which the stock is valued after the strike. Or am I getting it wrong?

nelsonenzo 6y ago
You are right, thank you for correcting me. So to add for others: > stock option strike price is usually equal to the FMV of the company’s stock on the day the option is granted. ergo, if the strike price when the options are granted is $1, they are worth $1, and your cost to exercise is to purchase them at $1. Ergo, as stefanDM points out, they have no additional value to your salary on day 1. They only have value if 1) They increase in value AND 2) They become tradeable on either a public or private exchange / are purchased by another company. I found this article to be useful: https://carta.com/blog/equity-101-stock-economics/#:~:text=For%20private%20companies%2C%20FMV%20is,day%20the%20option%20is%20granted https://carta.com/blog/equity-101-stock-economics/#:~:text=F....