Glossary - Option
An option is a contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date, depending on the form of the option. Options are versatile financial instruments. There are many types of options, including those that allow an investor to purchase stock (call options) or sell stock (put options) at a set price.
Also known as
- Stock Options
- Derivatives
- Equity Options
Use cases examples
- Stock Option Agreement: The option granted hereby confers upon the holder the right to purchase up to 10,000 shares of the Common Stock of the Company at a price of $10.00 per share, vesting over a four-year period.
- Employee Equity Incentive Plan: Under the plan, eligible employees are granted options to purchase company stock at a 25% discount to the current market price, with the option vesting over a period of three years and exercisable for up to ten years from the grant date.
Considerations for investors
- Evaluating the terms of the option agreement for alignment with investment objectives.
- Assessing the potential impact of dilution from option pools on investment value.
Considerations for founders
- Understanding the implications of option pool dilution on ownership percentage.
- Developing a strategic plan for option grants to align with company performance and growth objectives.
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