First, let's clarify the stock concept.
Suppose a furniture company is slowly growing.
At a given point Walmart hears about it and orders really big.
The owners of the upstart company would like to honor it, but simply cannot because they don't have the production means to manufacture it.
At the same time, they also know that Walmart is a good client to have.
So they decide to quickly acquire a new production line and the necessary manpower.
But that costs money, which they don't have.
What they can do is list their company on the stock market, literally selling a chunk of it to the public.
The investors get the stock and the company gets the needed financing for expansion.
Investors hope the company will perform well in the future, so they usually hold onto the stock, usually for a long time, which can be a few years.
Meanwhile, they can reap annual dividends from the profits.
Now, let's get the options explained.
An investor can make faster profits by speculating against the constant fluctuation in stock value.
John can sell Mary the right to purchase a given stock at a predetermined price after a given time.
If the stock goes up, Mary can exercise her right and buy the stock at the pre-determined, lower price.
Option exercise means John cashes in and Mary gets the expensive stock at a lower price.
If the stock depreciates, Mary will not exercise her option and John gets to keep his stock (albeit depreciated) and the money made from selling the option.