Strike Price
The strike price, also known as the exercise price, the price at which an employee pays to purchase their shares. This price is typically lower than the current market price per share.
What is the strike price?
The strike price, also known as the exercise price, is the price at which an option contract can be exercised. In other words, it is the price at which the holder of the option can buy or sell the underlying asset (such as a stock) if they choose to exercise their option.
How is the strike price determined?
The strike price on an options contract for an employee is typically determined by the company's board of directors or a committee of the board. The strike price is the price at which the employee can exercise their options and purchase shares of the company's stock. There are a few different methods that can be used to determine the strike price, including: Fair market value: The strike price is set at the fair market value of the company's stock on the date the options are granted. This can be determined by using an independent valuation firm or by referencing the stock prices of comparable companies. Discounted price: The strike price is set at a discounted price, typically at a percentage of the fair market value. This is done to provide an incentive for the employee to stay with the company and to align their interests with those of the shareholders. Black-Scholes model: The strike price is determined using the Black-Scholes option pricing model, which takes into account factors such as the company's stock price, volatility, time to expiration, and the risk-free rate. The method used will depend on the company's policy and the legal and regulatory requirements.
What is the difference between the strike price and the market price?
The strike price is the price at which the holder of an option can buy or sell the underlying asset. The market price is the current price of the underlying asset in the market.
