For employees of a company, a stock option is a contractual right the company grants, generally under a stock option plan, to purchase a specified number of shares of the company's stock at a specified price (the exercise price) for a specified period (generally between five and 10 years). Since the exercise price is the market price of the company's stock on the grant date, the option will become valuable only if the stock price goes up, thereby giving the optionholder the right to buy the specified number of shares at a discount.
The definition above describes an employee stock option
, as distinguished from a listed or exchange-traded option
, which is quite different. Note that myStockOptions.com covers only employee stock options.
Employee stock options exist in several forms. See: performance stock options
; premium stock options
; discounted stock options
; indexed stock options