What is the difference between a strike price and option value of stock shares at a startup?
A stock option gives you the option to buy shares of a given company at a certain price, the strike price, at a later date. If the stock price (say, $1) rises above the strike price (say, $0.75), you can exercise your option to buy shares at the strike price, and then turn around and sell those shares at the stock price, making $0.25 a share. If the option is currently underwater (i.e. the current stock price is lower than the strike price, so you’d lose money if you exercised the option), the option still has a positive value (aka expected value or fair market value), since there’s some chance that later the stock price will rise up above the strike price. The expected value of an option is calculated using a probabilistic model that takes into account the strike price, the stock price, the stock’s volatility, etc. It’s a best estimate of how much the stock option is worth, for accounting and transfer purposes.
