The right to purchase company shares at a fixed price in the future — the primary equity compensation vehicle for startup employees.
A stock option grants the recipient the right to buy company shares at a predetermined price (the strike price) at some point in the future, subject to vesting. Options don't give you shares directly; they give you the right to buy shares. Once vested, you exercise your options by paying the strike price to receive actual shares.
There are two types. Incentive Stock Options (ISOs) can only be granted to employees and have favorable tax treatment: you don't owe regular income tax when you exercise; you only pay capital gains tax when you eventually sell the shares (if you hold long enough). Non-Qualified Stock Options (NSOs or NQSOs) can be granted to employees, advisors, and contractors, but you owe ordinary income tax on the "spread" (the difference between the strike price and the current fair market value) when you exercise.
ISOs are generally better for employees because of the tax treatment, but there are limits on their use. The choice of ISO vs. NSO and the tax planning around option exercise timing are important financial decisions that are worth discussing with a tax professional, especially before liquidity events.