Stock options work by a company granting its employees a certain number of stock options at a set price, time-limited; the employee can purchase a set amount of stocks at a set price within a specified time frame. Generally, the amount the employees pay is less than the current market price.
Stock options are contracts that represent the right to buy (or sell) shares of the underlying equity at a predetermined price, and by a predetermined date. Stock options are traded in units called "contracts," which are typically based on 100 shares of the underlying equity.
Broadly speaking, options trading refers to the practice of buying and selling options contracts. These contracts give the buyer the right -- but not the obligation -- to buy or sell a stock or other asset at a predetermined price, within a predetermined time period.