STOCK OPTIONS – WHAT ARE THEY ?

A stock option is a specific type of option with a stock as the underlying instrument (the security that the value of the option is based on). Thus it is a contract to buy (known as a “call” contract) or sell (known as a “put” contract) shares of stock, at a predetermined or calculable (from a formula in the contract) price.

It is Having the Rights to purchase a corporation’s stock at a specified price.

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.

Performance Stock Options are Options that vest if pre-determined performance measures are achieved. The performance goal (revenue growth, stock-price increases…) must be reached for the options to be exercisable or for the vesting to be accelerated

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