Stock Option

Stock Option refers to a stock as a instrument of security. It is known as a “call contract” when bought and “put contract” when sold. It is a contract where the buyer has a option to buy stocks at a pre-determined rate. This can also mean that a member holding stock option can sell the same after a specific time period. There maybe restrictions guided by agreements for the call and put contracts.

Infact There are two definitions of stock options.

1. The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.

2. A widely used form of employee incentive and compensation.In some Companies, Stock options constitute part of remuneration.
Employee stock options are stock options for the company’s own stock that are often offered to upper-level employees as part of the executive compensation package. An employee stock option is identical to a call option on the company’s stock, with some extra restrictions.

Also there are Performance Stock Options which are vested only if a pre decided measure of performance is achieved. The options can be only exercised only if those performance goals are reached.