A capital stock, or simply known as stock, of any business entity is a representation of the original capital invested into the business by its founders. It is a type of security that would signify ownership within the business or the company.
There are two types of stocks, common and preferred. Owner of common stocks would generally have voting rights. This means he or she can attend shareholder meetings, vote on issues, and receive dividends.
Preferred stock on the other hand does not have the same voting rights as common stock, generally speaking. However, they have higher value or claims to earnings and assets compared to the former. One such example of this preference is that people holding this would receive their dividends first before common stock holders, in case the company is liquidated.
An option on the other hand is a contract or a financial instrument between two parties, a buyer and a seller. The buyer would gain the rights to purchase a particular asset, but not the obligation to do so. The buyer can simply opt to purchase or not depending on his or her discretion. The asset price is fixed. This asset can be a property, goods, or stocks.
The seller on the other hand would incur the obligation to fulfill delivery of the asset once the buyer exercises his or her option to purchase the said asset.
Stocks and options have one main similarity, they are both securities. Click here to keep reading about the main differences between the two.