Understanding strike prices can be rewarding

Ask the Fool: What’s a stock option’s “strike price”? – T.D., Jackson, Miss. A: Imagine you work for Global Telepathic Messaging. You’re issued 1,000 employee stock options with a strike (or “exercise”) price of $10 each. A few years later, GTM goes public, issuing shares of stock for the first time via an initial public offering (IPO). The shares (trading under the ticker symbol ESPME) are initially priced at $20 each, but a year later they’re trading at $35. At this point, you decide to “exercise” your options. Since your options carry a strike price of $10, you’re entitled to buy up to 1,000 shares at $10 each – not the $35 that they’re going for on the open market. If you exercise all of them, you’ll fork over $10,000 to your company for 1,000 shares worth $35,000. You can hang on to them as long as you like, or quickly... [read full story]