The strike price, also known as the “exercise price,” is the predetermined price at which an individual can purchase one share of their company's stock when exercising a stock option. It is set at the time of the initial stock option grant and remains constant regardless of when the option is exercised in the future. Regardless of any increase in the company's value, the strike price remains the same as stated in the option grant.

Calculation of Strike Price

When stock options are granted, the strike price is typically based on the company's 409A valuation, which is also known as the fair market value, at the time the option is granted. Companies obtain independent appraisals of their shares annually for tax purposes, and the 409A valuation becomes the strike price for newly granted stock options. Until the company receives a new appraisal and the 409A valuation changes, the strike price remains the same for all new stock options. Existing stock options retain their original strike price.

Typical Range of Strike Prices

The specific amount of the strike price varies depending on the company's maturity and performance. In the early stages of most companies, strike prices are generally low, often below a dollar, and occasionally as low as five or ten cents per share. As the company grows and matures, the strike price tends to increase. The range can span from a few cents per share to hundreds of dollars per share. The number of shares a company has issued also influences the strike price. If two startups have different numbers of fully diluted shares, but all else is equal, the 409A valuation and corresponding strike price will differ proportionally.

Locating the Strike Price

The strike price is typically indicated on the initial stock option grant documentation. Many companies now manage their equity through digital platforms like Pulley or Carta, where employees can access detailed information about their stock options, including the strike price.