Exercise Price
Another term for strike price; the cost to buy one share when exercising your options.
Definition
Exercise price is synonymous with strike price. It is the amount you pay per share to exercise (purchase) your stock options. The exercise price is set equal to the 409A fair market value on the grant date and remains fixed for the life of the option. When you exercise, you pay the exercise price times the number of shares you are purchasing.
Why it matters
This is the out-of-pocket cost to convert your options into actual shares. If you have 10,000 options at a $5 exercise price, it costs $50,000 to exercise all of them. Plan ahead for this cost and the associated taxes.
Example
You have 20,000 options with a $2.50 exercise price. Exercising all of them costs $50,000 out of pocket. If the current FMV is $15, you are buying $300,000 worth of stock for $50,000.