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Contractual agreement entitling the holder to buy or sell a share of stock at a designated price for a specified period of time, regardless of changes in its market price during that period. The various kinds of stock options include put and call options, which may be purchased in anticipation of changes in stock prices, as a means of speculation or hedging. A put gives its holder an option to sell, or put, shares to another party at a fixed price even if the market price declines. A call gives the holder an option to buy, or call for, shares at a fixed price even if the market price rises. U.S. corporations often issue stock options to executives as a form of compensation in addition to salary, on the theory that an option is an incentive to improve the company's business and thus raise the value of its stock; at times such options have been far more valuable than the salary itself.
This entry comes from Encyclopædia Britannica Concise. For the full entry on stock option, visit Britannica.com.