Stock Option Legal Meaning and Definition

Here is a simplified definition of the legal term Stock Option.

Stock Option (noun):

A stock option refers to a contractual agreement granting its holder the right, but not the obligation, to buy or sell a specific amount of stock at a preset price. This right can be exercised within a predetermined time span. Used primarily in transactions dealing with future trading, it allows the holder to settle the agreement by paying or receiving the difference between the agreed-upon option price and the market price, without any requirement to actually change the ownership of the stock or commodity.