Stock options are contracts that give the holder the right, but not the obligation, to buy or sell an asset at an agreed price on or before a specified date. Buyers of options pay a fee, a premium to purchase a contract. They are a financial derivative that represents a contract sold by one party (an option writer) to another party (an option holder). The contract offers the buyer/holder the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time in the future or on a specific date (exercise date).

Employee stock options are similar to call or put options, with a few key differences. Employee stock options normally vest rather than having a specified time to maturity. This means that an employee must remain employed for a defined period of time before he earns the right to purchase his options. There is also a grant price that takes the place of a strike price.