Key Differences at a Glance
| Aspect | RSUs | Stock Options |
|---|---|---|
| What you receive | Actual shares when vested | Right to buy shares at strike price |
| Cost to acquire | $0 (you pay taxes only) | Strike price × number of options |
| Value when stock drops | Still has value (just less) | Can be worthless if below strike |
| Upside potential | Limited to stock growth | Unlimited (no cost basis eaten up) |
| Typical at | Public companies, late-stage startups | Early-stage startups |
| Tax treatment | Ordinary income at vesting | Complex (depends on ISO vs NSO) |
How RSUs Work
RSUs are straightforward: you're granted a number of shares that vest over time. When shares vest, they become yours automatically. You don't pay anything to acquire them (though you owe taxes).
Example: You receive 1,000 RSUs when stock is $100. After 1 year, 250 shares vest. If stock is now $120, you receive $30,000 worth of shares (taxed as income).
How Stock Options Work
Stock options give you the right (not obligation) to buy shares at a fixed "strike price." You only profit if the stock price exceeds your strike price.
Example: You receive 10,000 options with a $10 strike price. After 4 years, if stock is $50, you can buy shares worth $50 for only $10 each. Profit = $40 × 10,000 = $400,000.
But: If stock is $8 (below your $10 strike), your options are "underwater" and worthless.
Risk Profile Comparison
RSUs: Lower Risk
- Always worth something (unless stock = $0)
- No out-of-pocket cost to acquire
- Simpler to understand and value
- But: Limited upside, fully taxed as income
Options: Higher Risk
- Can be worthless if stock falls below strike
- Require cash to exercise
- But: Unlimited upside potential
- But: Potential for favorable tax treatment (ISOs)
When You'll See Each Type
Stock Options
Early-stage startups (Seed through Series B) typically offer options. The low strike price based on 409A valuation means more potential upside if the company succeeds.
RSUs
Public companies (Google, Meta, Amazon) and late-stage startups use RSUs. The stock is liquid or nearly liquid, so the guaranteed value makes more sense.
Example: Same Grant Value, Different Outcomes
Company offers you $100,000 in equity. Stock price today: $50.
| Scenario | RSUs (2,000 shares) | Options (10,000 @ $50) |
|---|---|---|
| Stock at $100 (2x) | $200,000 | $500,000 |
| Stock at $50 (flat) | $100,000 | $0 |
| Stock at $25 (down 50%) | $50,000 | $0 |
Frequently Asked Questions
Which is better, RSUs or stock options?
Neither is universally better. RSUs have guaranteed value (as long as stock > $0) but limited upside. Options have unlimited upside but can be worthless if stock falls below strike price.
Do I have to pay anything to get my RSUs?
No. RSUs are granted to you without cost. You pay taxes when they vest, but you don't need to pay to acquire the shares like with options.
What happens to my stock options if the company goes public?
If the company IPOs, your options become exercisable for publicly traded shares. You can exercise (pay the strike price) and sell shares on the market.
Why do startups use options instead of RSUs?
Options have tax advantages for early-stage companies and employees. ISOs (Incentive Stock Options) can qualify for favorable long-term capital gains treatment if held correctly.
Model Your Equity
Use our calculator to see what your RSUs or options could be worth.
Open RSU Calculator