Burned options are employee stock options that never converted into shares — lost to vesting rules, departures, or expiration.

How it works

When a company grants options, they usually vest over time and must be exercised before an expiration date (often seven to ten years from grant, or sooner after termination). Options burn when:

• An employee leaves before vesting and unvested shares return to the pool
• Vested options expire because the employee did not pay the exercise price
• Post-termination exercise windows close (sometimes only 90 days after leaving)
• The fair market value stays below the strike price, so exercising makes no economic sense

Burned options differ from canceled options administratively — canceled often means HR formally clawed back unvested grants — but colloquially both describe equity compensation that did not create shareholder value.

Some companies extend post-termination exercise periods or reprice underwater options to reduce burn; investors watch those moves for dilution and governance signals.

Why it matters

• Founders: High option burn alongside hiring churn suggests retention problems or grants that were too optimistic on valuation. Clear communication about 90-day windows prevents surprise losses for departing employees.
• Investors: Option pool sizing assumes some burn returns shares to the pool. Excessive burn without rehiring efficiency can mean you need option pool refreshes that dilute earlier shareholders.

Common mistake

Employees treating paper option value as cash without modeling exercise cost, taxes, and liquidity timing — then feeling misled when options burn after a departure.

Related ideas

See also canceled options, option pool, 409A valuation, ISO vs NSO, and cap table.