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LSDefine
Simple English definitions for legal terms
stock option
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A quick definition of stock option:
A stock option is a type of agreement that gives someone the right to buy a certain amount of stock in the future at a set price. To actually get the stock, the person with the option has to pay the agreed upon price and ask for the shares to be given to them.
A more thorough explanation:
A stock option is a type of financial contract that gives the holder the right, but not the obligation, to buy or sell a certain amount of stock at a predetermined price within a specific time period. This right is granted by the company to its employees or investors as a form of compensation or incentive.
For example, let's say a company grants an employee the option to purchase 100 shares of the company's stock at $50 per share. If the stock price rises to $60 per share, the employee can exercise their option and buy the shares at the lower price of $50, then sell them at the higher price of $60, making a profit of $10 per share.
Stock options can be a valuable tool for companies to attract and retain talented employees, as well as for investors to potentially profit from the future growth of a company's stock.