Options Basics: What's Stock Option?

An stock option is a contract that gives the buyer the right, but not the obligation, to buy or sell a stock at a specific price (aka strike price) on or before a particular day (aka expiry day).

There are two types of options, call or put. A call stock option gives the buyer the right to buy 100 shares of a stock at a specified price while a put stock option gives the buyer the right to sell 100 shares of a stock at a specified price.

For example, an AAPL Jan 2008 195.0000 call is a call option that gives the option holder the right, but not the obligation, to buy 100 Apple shares at $195 before Jan 2008. The strike price of this option is $195 and the expiry day is Jan 2008.

Most exchange-traded options are American options, which can be exercised at any time before or on the expiry day. By contrast, European options can be exercised only on the expiry day.

Posts that discuss options basics:
What's Stock Option?
Premium, Intrinsic Value and Time Value
Option Investment, How it Works?
Why Option Investment?
What's the risk?