Exercise Price

Exercise Price vs. Strike Price

The terms exercise price and strike price are often used interchangeably, but they can have slight distinctions depending on the context.

Exercise Price (Stock Options Context)

The exercise price is the pre-determined price at which an option holder can purchase company shares once their stock options vest. It is typically set at the fair market value (FMV) of the shares at the time the options are granted.

• If the market price of the shares rises above the exercise price, the option holder can buy the shares at a discount.
• If the market price is below the exercise price, the options remain "underwater" and are not worth exercising.

Strike Price (Options Trading Context)

The strike price is a term commonly used in financial derivatives trading and refers to the fixed price at which an options contract (e.g., call or put options in the stock market) can be exercised.

Key Takeaway

For employee stock options (ESOPs) and startup equity plans, exercise price is the more commonly used term, while strike price is more frequent in public options trading. However, in practical use, they often mean the same thing—the price at which an option holder can buy the underlying shares.