Stock options are contracts that give an employee the right to buy a certain number of shares of their company's stock at a predetermined price, known as the exercise or strike price. This option typically has a set period during which it can be exercised, often several years. If the company's stock price rises above the strike price, the employee can buy shares at the lower price, potentially making a profit. Companies often use stock options as part of their compensation packages to attract and retain talent. They align the interests of employees with those of shareholders, as employees benefit when the company's stock performs well.