Income & Work

What Are Employee Stock Options?

Employee stock options give an employee the right to buy a set number of company shares at a fixed price, called the strike or exercise price, after they vest. If the share price rises above the strike price, the employee can buy shares for less than their market value. In the US, the two main types are ISOs and NSOs.

ISOs vs. NSOs

Non-qualified stock options (NSOs) create ordinary income when exercised; incentive stock options (ISOs) can qualify for capital gains treatment but may trigger the alternative minimum tax.

Expiration

Options expire if not exercised within the allowed period, often shortened after leaving the company.

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Restricted Stock Units (RSU) Vesting Alternative Minimum Tax (AMT) Call Option

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Last updated: September 29, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.