A stock option is a financial contract that gives an individual the right, but not the obligation, to buy or sell shares of a company's stock at a predetermined price, known as the exercise price, within a specific time frame. This tool is often used by companies to attract and retain employees, allowing them to benefit from the company's growth. When employees receive stock options, they can purchase shares at the exercise price even if the market price rises above it. If the market price is lower than the exercise price, they may choose not to exercise the option. This potential for profit makes stock options an appealing incentive.