What is a stock option?

A stock option is a financial contract based on individual stocks traded on an exchange and settled by a clearing house. Options are a way to actively interact with stocks you're interested in without trading the stocks. When trading options, you can control shares of stock without ever having them.

Such type of contract is divided into call options and put options. In addition, options can be divided into American options and European options based on the exercise method. Most U.S. stocks and ETF options are American options, while index options are generally European options.

Call options give option buyers the right to buy the underlying asset at a specific price and give option sellers the obligation to sell the underlying asset at a specific price.

Put options give the option buyers the right to sell the underlying asset at a specific price and give the option sellers the obligation to buy the underlying asset at a specific price.
The definition of European options is similar to that of American options, except that European options can only be exercised on the expiry date of the contract.