Stock Option :

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Under a stock Option Plan a company grants to an employee the right (option) to buy a certain number of shares in the company at a fixed price for a certain number of years (option period). The fixed price is called the ‘grant’ or ‘strike’ or ‘exercise’ price and is typically the market value / fair value of the shares on the date of grant. Since the grant price remains fixed over the term of the option, the employee expects that the share price would increase and he would gain by exercising his option at a lower price. Before  the employee can exercise the option he is usually required to complete the vesting period (or fulfill other vesting restrictions) Which typically require that he continue to work for the Company for a minimum number of years (three to five years) before part or all of the options can be exercised. Many a times, certain performance targets are set before the options can be exercised.

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