Stock Option

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DEFINITION of 'Stock Option'

A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

In the U.K., it is known as a "share option".

BREAKING DOWN 'Stock Option'

American options can be exercised anytime between the date of purchase and the expiration date. European options may only be redeemed at the expiration date. Most exchange-traded stock options are American.

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  2. What does the underlying of a derivative refer to?

    A derivative security is a financial instrument in which the price of the derivative is dependent on its underlying asset. ... Read Full Answer >>
  3. What does it mean to take delivery of a derivative contract?

    When trading derivative contracts for options, a buyer or holder may have to take delivery of the underlying asset if the ... Read Full Answer >>
  4. What is the difference between earnings per share (EPS) and diluted EPS?

    Earnings per share (EPS) and diluted EPS are profitability measures used in fundamental analysis of companies. EPS only takes ... Read Full Answer >>
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