How do stock options work?

Stock options work by giving the owner the right to buy a specific number of shares of company stock at a pre-set price, known as the exercise or strike price. Basically, it is a way for an employee to own stock of the company they work at, and they can purchase this stock at a discounted rate.

Stock options are a well-known form of equity compensation. Many people receive stock options either when they are first hired or after a set length of time at a company. There is often a fixed period of time before someone takes actual ownership of granted options. This time is known as the vesting period. After options vest, the employee now earns these stocks.