Employee Stock Option Value Calculator

Employee options have value when the company's fair market value exceeds the strike price. This calculator shows intrinsic value at any FMV across a standard four-year vesting schedule with a one-year cliff.

Vesting mechanics

Standard US startup options vest over four years with a one-year cliff: nothing vests for the first 12 months, then 25% vests at the cliff, and the remaining 75% vests monthly over the next 36 months. If you leave before the cliff, you forfeit everything. After the cliff, you keep what's vested; unvested options return to the pool.

Intrinsic value vs. fair value

Intrinsic value = max(0, FMV − Strike) × Vested shares

Intrinsic value is what the option is worth if exercised today. Fair value is what an option-pricing model (Black-Scholes or binomial) says the option is worth, accounting for time, volatility, and the chance of further appreciation. Companies use fair value for accounting (ASC 718); employees usually care about intrinsic value because that's what they would actually realize on exercise.

The strike-FMV gap matters

If the strike price equals current FMV (typical for new grants), intrinsic value is zero — the option only has value if the company grows. Early employees with strikes set when the company was worth $5M might have meaningful intrinsic value even before liquidity. Joining at later valuations means joining with smaller potential leverage.

Worked example

An employee receives 40,000 options at a $2.00 strike. Three years later, the company's most recent 409A puts FMV at $9.50. Vested shares: 30,000 (75% of grant). Intrinsic value per share: $7.50. Vested intrinsic value: $225,000. If the company exits at $9.50 per share and the employee exercises and sells immediately, that's $300,000 of pre-tax gain on the full grant — though tax treatment depends on whether the options are ISOs or NSOs.

What this doesn't account for

Tax treatment. ISOs vs. NSOs have very different tax outcomes. ISOs can trigger AMT on exercise; NSOs trigger ordinary income. Long-term capital gains on appreciation after exercise require holding periods.
Exercise window after termination. Standard is 90 days; some companies offer extended windows. Options not exercised in the window are forfeited.
Liquidity. Vested options are not cash. Until the company exits or buys back, you can't realize the value (with rare secondary market exceptions).
Future dilution. Subsequent funding rounds dilute employee ownership before exit. Plan around 30-50% dilution between Series B and exit for typical venture paths.

FAQ

Options at a $5 strike, 2,000 vesting over 4 years, FMV $6 after one year, IPO at $20. What are they worth? With a standard 1-year cliff, 500 options are vested after year one. At a $6 FMV their intrinsic value is 500 × ($6 − $5) = $500. At a $20 IPO price each option is worth $15. If the IPO happens at year one, the 500 vested options are worth $7,500. Once all 2,000 have vested they are worth $30,000, before taxes and any lock-up. Unvested options are worth nothing unless the plan accelerates vesting.

What is the intrinsic value of a stock option? Intrinsic value = (Share price − Strike price) × Number of vested options, and never below zero. It ignores time value and volatility, so it understates the value of options a long way from expiry.