Stock Option

AAA

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".

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Equity Compensation

    This is one way to attract and retain employees to a startup ...
  2. Stock Trader

    An investor in the financial markets. Stock or equity traders ...
  3. Option Chain

    A form of quoting options prices through a list of all of the ...
  4. Index Option

    A financial derivative that gives the holder the right, but not ...
  5. Writer

    The seller of an option who collects the premium payment from ...
  6. Long-Term Equity Anticipation Securities ...

    Publicly traded options contracts with expiration dates that ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. What does it signify about a company if there is a large difference between its EPS ...

    If there is a large difference between a company's basic earnings per share (EPS) and its diluted EPS, it signifies that ... Read Full Answer >>
  5. How can I use equity options to protect my stock portfolio from downturns?

    Equity options, or stock options, could serve as protection and help to mitigate risk for a long stock portfolio. Stock options ... Read Full Answer >>
  6. What does high open interest tell you about an option?

    A high open interest of options provides investors and traders with useful information to consider when entering options ... Read Full Answer >>
  7. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
  8. What is the difference between enterprise value and equity value?

      Enterprise value and equity value are two common ways that a business may be evaluated from a sales standpoint. Both may ... Read Full Answer >>
  9. Why are options very active when they are at the money?

    Stock options, whether they are put or call options, can become very active when they are at the money. In the money options ... Read Full Answer >>
  10. How do you tell whether an option is American or European style?

    As a quick recap, American-style options are options that can be exercised at the strike price anytime before or on the date ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  2. Home & Auto

    7 Steps To A Hot Commercial Real Estate Deal

    For savvy real estate investors, times of lower prices reveal investment opportunity.
  3. Options & Futures

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  4. Economics

    Globalization: Progress Or Profiteering?

    Proponents of globalization argue that it helps the economies of developing nations and makes goods cheaper, while critics say that globalization reduces domestic jobs and exploits foreign workers. ...
  5. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  6. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  7. Options & Futures

    The Benefits And Value Of Stock Options

    The pros and cons of corporate stock options have been debated since the incentive was created. Learn more about stock option basics and the cost of stock options.
  8. Options & Futures

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
  9. Options & Futures

    Executive Compensation: How Much Is Too Much?

    The proxy statement can help determine whether a CEO is well compensated - or just overpaid.
  10. Investing Basics

    What are the Pink Sheets?

    Pink Sheets is a listing of over-the-counter stocks that are not listed on any established exchange such as the New York Stock Exchange or the NASDAQ.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!