A stock option is the privilege of an individual or organization to buy (call option) or sell (put option) at an agreed on price at, before, or after an agreed on time. As an example, a number of shares of a given company can be provided as an option to an individual at a reference price, such as that day’s trading value, with a vesting period of one year. After the completion of that year, the individual with the option will have the ability to purchase the stock at the reference price, alternatively referred to as the strike price or the exercise price, and may choose...More to do so if the value of the stock has gone up. The issuer of the option would have the obligation to sell the stocks at the reference price if the owner of the option chooses to exercise the option.
Stock options can come in many forms, but generally fit within the realms of market traded options and employee stock options. Market traded options require the option to be exercised before an expiration date, or on the expiration date for European options, and can be traded anonymously through the options exchange market, or through over the counter exchanges on an ad hoc basis. Employee options are extended by employers to employees or others, and often require an employee to work through a vesting period before the option can be exercised.Less