Stock Options

Definition:

Stock Options are options, usually given to employees, to purchase stock in the company at a future date. The price of the option is established, thus if the company's stock price rises above the option price, the owner is able to take advantage of the stock increase (current stock price - established stock price). Options therefore work well for high growth companies and are used to increase loyalty of early stage employees. They are also used to replace some part of the salary which helps reduce the company's cash flow (burn rate). Stock options may vest over multiple periods of time. Thus a certain amount of the options become available at certain stages.

Related terms:

Gross margin

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