A block of shares reserved for future grants to employees, advisors, and consultants through a stock option plan.
An option pool is a set of shares reserved in the company's cap table for future grants to employees and advisors. When a company sets up a stock option plan (usually an equity incentive plan), it authorizes a certain number of shares to be used for option grants. These shares are "reserved" in the cap table even before they're granted to anyone.
Most early-stage companies establish an option pool of 10–20% of fully diluted shares when they incorporate or before their first raise. The pool size is a negotiating point with investors: VCs often require that a large option pool (say 15–20%) be created before their investment, which effectively dilutes founders. Creating the pool from pre-money shares rather than post-money shares is the standard approach and is favorable to investors.
As you grant options to employees, those grants reduce the available pool. When the pool is fully allocated, you need a board vote to increase it. Managing the option pool carefully — not over-granting early, saving enough for key future hires — is an important part of equity management.