Stock options give investors the right, but not the obligation, to buy or sell a stock at an agreed price and date. They are a form of equity derivative based on the value of an underlying stock. There are two types: call options (to buy) and put options (to sell). Options can be in-the-money (ITM) if profitable, or out-of-the-money (OTM). Call options give the right to buy, while put options give the right to sell. Exercising an option is converting it into shares at the strike price.