Definition
The right, but not the obligation, to buy shares at a set strike price. Employee options vest over time and pay off only if the stock rises above the strike; the tax treatment differs by option type and by when you exercise and sell.
Why it matters
Options can be a large slice of pay at startups and public companies alike, yet their value is conditional, concentrated, and taxable in ways salary is not. Treating the paper value as bankable money is a classic mistake.
Example
An engineer holds 1,000 vested options with a $10 strike while the stock trades at $25. Exercising costs $10,000 for shares worth $25,000, a $15,000 spread that is taxable. If the stock slides under $10, the same options are worth nothing.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.