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 is typically granted as part of an employee's compensation package and can be exercised after a specified period, known as the vesting period. When employees exercise their stock options, they can purchase shares at the strike price, even if the market price is higher. This can lead to potential profits if the company's stock performs well. However, if the stock price falls below the strike price, the options may become worthless.