Accounting Dictionary

Stock Option

A stock option is the right to buy or sell a share of stock if you so desire. Usually the price is specified at the time the option is granted rather than at the time of the transaction. Some common stock options are put options, call options, and employee stock options.

John has the option to buy his employer’s stock at $50 a share. If the stock goes up to $60, he will exercise the option and buy the stock at $50. He can then sell immediately and earn a profit of $10 a share. If John’s employer’s stock goes down to $30, John will not exercise his $50 stock option because, in that case, he couldn’t make any money.

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