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Introduction
The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium.
Setting the strike price
When granting employee options, the company sets the strike price at the fair market value of the company. An important factor in determining the fair market value is a value recommendation given by a third party firm called a 409A valuation.
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