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What are stock options?

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Quick answer

Stock options are contracts that give you the right — but not the obligation — to buy or sell a stock at a set price by a certain date. They're used both as employee compensation and as investment or hedging tools.

Key things to understand

  1. An option is the right (not obligation) to buy or sell at a set price.
  2. A 'call' lets you buy; a 'put' lets you sell.
  3. Employee stock options reward staff if the company grows.
  4. Traders use options to speculate or to hedge risk.

People also ask

What are stock options in simple terms?
Contracts giving you the right to buy or sell a stock at a fixed price before a deadline.
What's the difference between a call and a put?
A call is the right to buy at a set price; a put is the right to sell at a set price.
Why do companies give employees stock options?
To reward and motivate staff, letting them share in the company's growth and success.