In the stock market
, stock options are a time-limited right (but not an obligation), sold at a certain price, to perform a transaction with the issuer
, the conditions of which are fixed and may therefore differ from the conditions the market
would later dictate. See Options
for the details, why this may be desirable but is dangerous.
Stock options are
a much broader field than what linky describes. They are sold and bought just like the stocks themselves, by pretty much everyone. Nowadays, options are never actually exercised in the sense that the option holder actually buys the underlying stock (or bond, or currency, or commodity) at the expiration date - instead, he recieves the price difference between the strike price and the current market value from the issuer.
This type of financial derivative instrument was originally invented to provide (limited) security against falling prices for e.g. sugar cane to farmers, and (limited) security against rising prices to companies that e.g. produce and sell refined sugar. Then, it was (and still is) adapted in a similar manner by people dealing with stocks, for whom such concepts are natural, and eventually some of them, those with gambling mentalities, realized that the leverage that options provide makes it possible to very quickly make huge fortunes with very little starting capital - and then discovered that in the same way, it is possible to lose huge fortunes even more quickly.