Stock option - Financial definition
Concise definition of the term stock option
A stock option is a financial contract that gives the holder the right, but not the obligation, to buy or sell a specific number of shares at a predetermined price within a set period.
Comprehensive definition of the term stock option
In finance, stock options are used as a tool for both investment and employee compensation. For investors, options can be utilized for speculation or hedging against price movements in the underlying stock. Companies often grant stock options to employees as part of compensation packages, offering potential financial benefits tied to the company's stock performance.
These options can be either calls, which allow buying at a set price, or puts, which allow selling. Market practices involve trading these options on exchanges, where their prices are influenced by factors like stock volatility, time to expiration, and current stock price relative to the strike price.