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Overview

Employee stock options (ESOs) are non-standardized, over-the-counter options that are issued as a private contract between the employer and employee. Over the course of employment, a company issues vested or non-vested ESOs to an employee which are struck at a particular price - often the company's current stock price. Depending on the vesting schedule and the maturity of the options, the employee may elect to exercise the options at some point, obligating the company to sell the employee its stock at whatever stock price was used as the strike price. At that point, the employee may either sell the stock, or hold on to it in the hope of further price appreciation.