Stock Options

## Stock Options

Stock options grant employees the right — but not the obligation — to buy company shares at a fixed price (the exercise or strike price). If the company's share price rises above the strike price, the employee profits from the difference.

### Types

| Type | Tax Treatment (US) | Typical Use |
|------|-------------------|-------------|
| ISO (Incentive Stock Options) | Favorable capital gains if held 2+ years | US employees |
| NSO (Non-Qualified Stock Options) | Taxed as ordinary income at exercise | Employees & contractors |
| EMI (Enterprise Management Incentives) | UK tax-advantaged | UK companies <£30M assets |

### Vesting

Options typically vest over 4 years with a 1-year cliff. After the cliff, 25% vest immediately, and the remainder vests monthly or quarterly.

### Key Risks

- Options can expire worthless if the share price stays below the strike price.
- Exercise may trigger significant tax liability (especially AMT for ISOs).
- In private companies, there may be no liquid market to sell exercised shares.