STOCK OPTIONS Meaning and
Definition
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Stock options are financial instruments that give an individual the right, but not the obligation, to buy or sell a specific number of shares of a company's stock at a predetermined price, known as the strike price, within a specified period of time. These options are often granted as a form of compensation to employees or as incentives to executives.
Stock options typically have an expiration date, after which they become worthless if not exercised. They are often used as a way to motivate employees by providing the opportunity for them to potentially benefit from the company's growth and success.
There are two types of stock options: call options and put options. Call options give the holder the right to purchase the company's stock, while put options give the holder the right to sell the stock. When an employee exercises their stock option, they purchase the stock at the strike price, and they can either choose to hold onto it or sell it at the current market price.
Stock options are influenced by various factors, including the price of the underlying stock, volatility in the market, interest rates, and the time remaining until expiration. They are often traded on regulated exchanges and can be bought and sold by investors. However, it is important to note that stock options can be complex and come with risks, such as the potential loss of the initial investment.
Etymology of STOCK OPTIONS
The term "stock options" has its roots in the broader concept of "stock" and the financial practice of granting individuals the "option" to buy or sell stocks.
The word "stock" originates from the Old English word "stoc" or "stock", which referred to a trunk or the main stem of a tree. Over time, "stock" came to be associated with a supply of goods or merchandise kept for trading or sale. In the context of finance and investments, "stock" specifically refers to ownership shares or equity in a company.
The term "options" stems from the Latin word "optio" or "optare", meaning choice or to choose. It later evolved into the Middle English term "option", which referred to the right or ability to choose or decide between alternatives.
