A stock option is a contract that gives the buyer the right, but not the obligation, to buy or sell a stock at a predetermined price and within a specific time period. There are two stock options — calls and puts. A stock call option grants the buyer the right to buy stock, which increases in value with the stock price rises. A put option grants the buyer the right to sell a stock short, which increases in value when the stock price decreases. A right to purchase or sell a share of stock at a specific price within a specified period of time. Stock options are often used as long term incentive compensation for management and employees at high-growth companies.
