Evaluation · Stock Options

What causes the drop on the strike price of a stock option?

Yana Podskrebalina QA Test Engineer at Woact Company

January 27th, 2017

I recently signed on with a startup who offered salary and an options package. My exercise (strike) price per share was around $2.35 before.

Today we were notified we're benefitting from a decreased strike price to $1.30 (Exercise price per share), with not much other context.

I don't understand enough about options to evaluate this, other than the fact that a cheaper strike price sounds good to me. What would cause a strike price to drop? I'm assuming a reevaluation of the market value of the company (for better or worse). I opted for more equity than salary so this means a lot to me.

My package is standard 4-year vesting w/ 1 yr cliff, so I'm not even a 1/4 vested yet.

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Dane Madsen Organizational and Operational Strategy Consultant

January 27th, 2017

Your instincts are good; it is most likely a result of a valuation of the company that reflected the price was too high. That can be caused by pure market feedback, a desire to use options more liberally to incentivize new employees, or to lower the potential impact to earnings from stock-based compensation. What you should be trying to find out is why this happened. Was it because the company is not doing as well as expected (internal valuation issues) or is it due to the general market for the space you are in. Because you are in the Ukraine, I have no idea what employee compensation rules exist, but if you have California operations, this information should be available because it is a wage issue.