Learn about Option Trading

What is Stock Option?


A stock option is a contract that gives the buyer of the contract the right, but not the obligation, to buy or sell a security at a certain price (i.e. strike price) on or before a certain date (i.e. expiration date).

After this expiration date, the option would cease to exist. In the US market, stock options expire on the third Friday of each expiration month. If that Friday is a holiday, then the options expire on Thursday.

Note:
Stock option here does not refer to the Employee Stock Option, but to exchange-traded option.
Here are the differences between Employee Stock Option and exchange-traded option.

Employee Stock Option:
Issued & granted by a company to an employee, generally to reward the employee’s contribution & loyalty.
Long term expiration period (like 5 to 10 years) so as to cultivate loyalty among the employees.
Not transferable (Cannot be sold or traded to a third party).

Exchange-traded Stock Option:
Not issued by the company itself, but by OCC (Options Clearing Corporation).
Shorter expiration, usually only a few months (except for LEAPS). LEAPS (Long-Term Equity Anticipation Securities) is an option contract with a very long expiration period (9 months or more).
Can be traded (bought or sold) at any time before expiration. For more information click this link