What is Strike Price?
The fixed price you pay to turn an option into a share - set at fair value on the grant date.
Strike Price: definition
A stock option lets you buy shares at the strike price no matter how much the stock later rises - that gap is your potential gain. To comply with IRS rules, the strike must be at least the fair market value of the common stock at grant, which is why the 409A valuation matters. A low strike from an early grant, against a much higher later value, is the source of option upside.
- The fixed price to buy one share when exercising an option
- Must be ≥ fair market value at grant (per the 409A) to avoid penalties
- The spread (FMV − strike) at exercise is the taxable/valuable gap
- Lower early strikes drive employee upside as the company grows
How Fintra handles it
Fintra sets each option grant’s strike from the current 409A valuation automatically, enforcing the FMV floor so no grant is priced too low. It records the strike on the cap table, computes the spread at exercise for tax purposes, and keeps the ASC 718 fair-value expense consistent with the strike and 409A used.
Worked example
Frequently asked questions
How is a strike price determined?
It is set at (or above) the fair market value of the common stock on the grant date, established by a 409A valuation. Setting it below FMV can trigger 409A tax penalties, so companies obtain and apply a current 409A to price grants.
What is the spread on an option?
The spread is the difference between the stock’s fair market value at exercise and the strike price. It represents the built-in gain and, depending on option type, may be taxed at exercise (NSO) or counted for AMT (ISO). Fintra computes it at exercise.
What does it mean for options to be underwater?
Options are underwater when the current fair market value is below the strike price, so exercising would cost more than the shares are worth. This can happen after a down round. RSUs avoid this risk because they have no strike.
Does Fintra set strike prices automatically?
Yes. Fintra applies the current 409A valuation as the FMV floor for each grant, records the strike on the cap table, and keeps the exercise-spread and ASC 718 expense consistent with it.
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