What do stock options mean?

Stock options are a type of financial derivative that gives an investor the right, but not the obligation, to buy or sell a stock at a specified price within a certain time period. This specified price is known as the strike price. Stock options are often used as a form of compensation for employees, as an incentive for management, or as a way for investors to hedge their positions. There are two types of stock options: call options and put options. A call option gives the holder the right to buy the underlying stock at the strike price, while a put option gives the holder the right to sell the underlying stock at the strike price. Stock options are often used as a way to leverage investments, as they allow an investor to control a larger number of shares for a fraction of the cost. This can potentially lead to higher returns, but also comes with a higher level of risk. Stock options can also be used for hedging purposes, as they allow investors to protect their positions from potential losses. For example, if an investor holds a large number of shares in a company and is concerned about a potential decrease in the stock price, they can purchase put options to offset any potential losses. Overall, stock options play a significant role in the world of finance, providing investors with a range of opportunities to leverage their investments, manage risk, and potentially increase their returns.